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Black_prince [1.1K]
3 years ago
14

Oil Well Supply offers a 7 percent coupon bond with semiannual payments and a yield to maturity of 7.73 percent. The bonds matur

e in 9 years. What is the market price per bond if the face value is $1,000?
Business
1 answer:
svp [43]3 years ago
8 0

Answer: <u>The market price per bond is $930,28.</u>

Explanation: First we must calculate the amount of each coupon.

1000 x 7% = 1000 x 0.07 = $ 70 each coupon.

The payments are semiannual and the bond expires in 9 years therefore we have a n = 9 x 2 = 18.

The yield to maturity is 7.73%

And the face value is 1000 $

P0 = ∑\frac{Cup_{t} }{(1+YTM)^{t} } + \frac{Face value}{(1+YTM)^{n} }

Where t is equal to each of the periods of time.

So:

∑\frac{70}{{1+0,0773}^{t}} +\frac{1000}{{1+0,0773}^{18}} = <u>930,28</u>

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