Norwegian Adventures offers a 6.5% coupon bond with annual payments. The yield to maturity is 6.71% and the maturity date is 7 years from today. What is the market price of this bond if the face
Value is $1,000?

Question

Quizplus · Accepted Answer

To find the market price of the bond, we need to calculate the present value of all future cash flows. The cash flows consist of annual coupon payments of 6.5% of the face value and the face value itself. We can use the following formula to calculate the present value of an annuity:
PMT x (1 - 1/(1+r)^n) / r + FV / (1+r)^n
where PMT is the annual coupon payment, r is the yield to maturity, n is the number of periods, and FV is the face value.

Using the information given in the question:
PMT = 0.065 x 1000 = $65
r = 6.71%
n = 7
FV = $1000

Plugging in these values, we get:
PV = 65 x (1 - 1/1.0671^7) / 0.0671 + 1000 / 1.0671^7
PV = $988.57

Therefore, the market price of the bond is $988.57, which is closest to option D ($988.57).

Norwegian Adventures Offers a 6