Wine and Roses plc offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%.The bonds mature in 9 years.What is the market price of a €1,000 face value bond?

Question

Quizplus · Accepted Answer

The market price of the bond can be calculated using the present value formula for bonds. The bond pays a 7% annual coupon, which is €70 per year or €35 semiannually. The yield to maturity is 7.73% annually, or 3.865% semiannually. The bond has 18 periods (9 years x 2). The present value of the bond's cash flows (coupon payments and face value) discounted at the semiannual yield gives the market price of €953.28.

Wine and Roses Plc Offers a 7% Coupon Bond with Semiannual