The 4.5 percent bond of JL Motors has a face value of $1,000,a maturity of 7 years,semiannual interest payments,and a yield to maturity of 6.23 percent.What is the current market price of the bond?

Question

Quizplus · Accepted Answer

The current market price of the bond is calculated using the present value of its future cash flows, which include the semiannual interest payments and the face value at maturity, discounted at the yield to maturity rate. The bond pays $22.50 every six months (4.5% of $1,000 annually, divided by 2), and the yield to maturity is 6.23% annually (or 3.115% semiannually). Using these values, the present value of the bond's cash flows is closest to $903.05.

The 45 Percent Bond of JL Motors Has a Face Value