Question

Madsen Motors's bonds have 14 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 7%, and the yield to maturity is 10%. What is the bond's current market price? Round your answer to the nearest cent.

Answer 1

Answer:

Bond price= = $869.84

Explanation:

Given data:

Face value (F)=$1000

Interest rate (i)=10%

Coupon rate (c)= 7% annually

No of year n = 14

we know that bond price is given as

$Bond price= C\times \frac{1-(1+r)^{-n}}{r}+\frac{F}{(1+r)^n}

$

putting all value to get the desired value                

$=  0.07 \frac{1-(1+0.10)^{-14}}{0.10}+\frac{1000}{(1+0.10)^14}$

                   = $869.84