What is the market price of a 12% p.a.semi- annual coupon bond with a face value of $100,two years to go until maturity when the current market yield is 10% p.a.?

Question

Quizplus · Accepted Answer

First, we need to calculate the present value of the bond using the market yield:

PV = (C/r)(1 - 1/(1+r)^n) + F/(1+r)^n

where:
C = coupon payment = 6 (12% of $100/2)
r = market yield = 0.10/2 = 0.05 (semi-annual)
n = number of periods = 2 (since there are two years remaining)

PV = (6/0.05)(1 - 1/(1+0.05)^2) + 100/(1+0.05)^2
PV = 62.59 + 90.88
PV = 153.47

Therefore, the market price of the bond is $153.47, which is closest to answer choice D ($103.47).

What Is the Market Price of a 12% P