An Australian Government 5.5%,$1000 bond matures in 7 years,pays interest semi-annually,and has a yield to maturity of 6.23 per cent.What is the current market price of the bond if a coupon payment has just been made?

Question

Quizplus · Accepted Answer

To find the current market price of the bond, we need to use the present value formula:

PV = C / (1+r/2)^n + C / (1+r/2)^(n-1) + ... + C + F / (1+r/2)^n

Where:
C = semi-annual coupon payment
r = yield to maturity (YTM) / 2 (since the bond pays semi-annually)
n = number of semi-annual periods (in this case, 7 years = 14 semi-annual periods)
F = face value of the bond

Plugging in the given values, we get:

PV = 27.5 / (1+0.03115)^1 + 27.5 / (1+0.03115)^2 + ... + 27.5 + 1000 / (1+0.03115)^14
PV = $959.09 (rounded to two decimal places)

Therefore, the correct answer is D.