Queen and Bees, Inc. 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

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The market price of the bond can be calculated using the present value of its cash flows, which include the semiannual coupon payments and the face value at maturity. The coupon payment is $35 (7% of $1,000 divided by 2), and the yield to maturity is 3.865% per period (7.73% divided by 2). The bond has 18 periods (9 years times 2). Using the present value formula for bonds, the market price is approximately $953.28.