Based on the value of the bond at par, the coupon rate, and the yield to maturity, the current market value of the bond is $895.87.
What is the current bond value?
This can be found as:
= Present value of bond coupon payments + Present value of par value
Coupon payments:
= 6% x 1,000
= $60
As this payment is constant, it can be treated as an annuity.
Current market value is:
= (Coupon payment x Present value of annuity interest factor, 8%, 7 periods) + ( 1,000 / (( 1 + rate) ^ number of years)
= (60 x 5.2064) + ( 1,000 / 1.08⁷)
= $895.87
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