Question

Oil Well Supply offers a 7 percent coupon bond with semiannual payments and a yield to maturity of 7.73 percent. The bonds mature in 9 years. What is the market price per bond if the face value is $1,000?

Answer 1

Answer: The market price per bond is $930,28.

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:

∑$\frac{70}{{1+0,0773}^{t}} +\frac{1000}{{1+0,0773}^{18}}$ = 930,28