Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000?

Question

Quizplus · Accepted Answer

Using the formula for present value of a bond:
PV = (C/r) x [1 - 1/(1+r)^n] + FV/(1+r)^n
where PV is the present value, C is the semiannual coupon payment, r is the semiannual yield to maturity, n is the number of semiannual periods, and FV is the face value.
Plugging in the given values:
PV = (37.5/0.0768) x [1 - 1/(1+0.0768)^12] + 1000/(1+0.0768)^12
PV = $991.47
Therefore, the market price per bond is $991.47, which is closest to option B ($991.47).

Oil Well Supply Offers 7