If a grand adventure properties issues a 9.5 percent coupon bond with annual payments, the bond's market price is $895.43 if the face value is $1,000.
The market price is the price at which a good or service can currently be purchased or sold. The forces of supply and demand decide how bond much an asset or service will cost on the market. The market price is the cost at which supply and demand are equal.
To determine consumer and economic surplus, one uses the market price. The term "consumer surplus" describes the discrepancy between the maximum price a consumer is prepared to pay and the actual bond amount they pay, often known as the "market price," for an item. The market price terms "consumer surplus" and "producer surplus" refer to two related quantities. The amount that producers profit from selling at the market price is known as producer surplus, sometimes known as market price profit (provided that the market price is higher than the least that they would be willing to sell for). The total of consumer surplus and producer surplus is the economic surplus.
Face Value = $1,000
Annual Coupon = 9.5% * $1,000
Annual Coupon = $95
Annual YTM = 11.2%
Time to Maturity = 11 Years
Market Price = 95*PVIFA(11.2%, 11) + 1,000*PVIF(11.2%, 11)
Market Price = 95*(1-(1/1.112)^11)/0.112 + 1,000/1.112^11
Market Price = $895.43
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