Last year, BT Motors issued 10-year bonds with an 8% coupon and semiannual interest payments. What is the market price of a $1,000 bond if the yield to maturity is 7.8%?

Question

Quizplus · Accepted Answer

First, we need to calculate the semiannual coupon payment:
$1,000 * 8% / 2 = $40
Next, we need to find out how many semiannual periods there are in 10 years:
10 years * 2 = 20 semiannual periods
Using these values, we can use the following formula to calculate the market price of the bond:
Market price = (coupon payment / (1 + yield)^1) + (coupon payment / (1 + yield)^2) + ... + (coupon payment + face value / (1 + yield)^20)
Market price = ($40 / 1.039) + ($40 / 1.039^2) + ... + ($40 + $1,000 / 1.039^20)
Market price = $19.29 + $18.91 + ... + $408.22
Market price = $1,013.71
Therefore, the correct answer is D.

Last Year, BT Motors Issued 10-Year Bonds with an 8