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Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 30 years. The bond pays interest annually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent? (round your answer to two decimal places)

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Shahzaibfaraz

Answer:

Bond Price = $945.2631228 rounded off to $945.26

Explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is an annual bond, the coupon payment, number of periods and annual YTM will be,

Coupon Payment (C) = 1000 * 0.0675  = $67.5

Total periods (n) = 30

r or YTM = 0.072 or 7.2%

The formula to calculate the price of the bonds today is attached.

Bond Price = 67.5 * [( 1 - (1+0.072)^-30) / 0.072]  + 1000 / (1+0.072)^30

Bond Price = $945.2631228 rounded off to $945.26

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