Question

The 4.5 percent bond of JL Motors has a face value of $1,000, a maturity of 7 years, semiannual interest payments, and a yield to maturity of 6.23 percent. What is the current market price of the bond

Answer 1

Answer:

The current market price for the bond is $903.05

Explanation:

Steps taken to arrive at the current market price of the bond

Recall PV=present value

face value=$1000

percent bond=4.5,

A semiannual interest payments of 7 years, yielding a maturity rate of=6.23%

PV = [(.045 × $1,000)/ 2] ×{(1 - {1 / [1 + (.0623/ 2)]14}) / (.0623 / 2)} + $1,000 / [1 + .0623 / 2)]14

PV = $903.05

Answer 2

The current market price of the bond is $903.05.

Given Information

FV = $1000

PMT = $22.5 (4.5%/2 * 1000)

N= 14 YEARS

I/Y = 6.23/2 % =3.115%

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

Market price = $903.05

In conclusion, the current market price of the bond is $903.05.

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