A 10-year bond with a par value equaling $1,000, pays 7% annually. If similar bonds are currently yielding 6% annually, then what is the market value of the bond? (use semi-annual analysis)
a) $700.00
b) $927.50
c) $1,074.70
d) $1,520.70

Question

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Respuesta :

tutordamola tutordamola · Answer 1 · 2020-09-10T02:34:32+02:00

Answer:

The answer is C.

Explanation:

This is a semiannual paying coupon.

N(Number of periods) = 20 periods ( 10years x 2)

I/Y(Yield to maturity) = 3 percent( 6 percent ÷ 2)

PV(present value or market price) = ?

PMT( coupon payment) = $35 ( [7 percent÷ 2] x $1,000)

FV( Future value or par value) = $1,000.

We are using a Financial calculator for this.

N= 20; I/Y = 3; PMT = 35; FV= $1,000; CPT PV= 1,074.39.

The nearest answer according to the options is $1,074.70

Therefore, the market price of the bond is $1,074.70

Tundexi Tundexi · Answer 2 · 2022-01-04T11:31:03+01:00

The Market value of the bond is $1,074.39.

Given information

N= 20 periods (10 years x 2)

I/Y = 3% (6%/2)

PMT = $35 ( [7%2] * $1,000)

FV = $1,000

PV = ?

Here, we are using the Financial calculator for derive the Present value (Market value) of the bond.

Market value = CPT PV(N, I/Y, PMT, FV)

Market value = CPT PV(20, 3, 35, 1000)

Market value = $1,074.39.

Hence, the Option C is correct because the Market value is $1,074.39.