Guggenheim, Inc. offers a 8.1% coupon bond with annual payments. The yield to maturity is 5.85%...
Guggenheim, Inc. offers a 8.1% coupon bond with annual payments. The yield to maturity is 5.85% and the maturity date is 9 years. What is the market price of a $750 face value bond?
Select one:
a. 721.36
b. 1064.60
c. 649.15
d. 958.70
e. 865.53
Homework Answers
Annual coupon=750*8.1%=$60.75
Hence market price=Annual coupon*Present value of annuity factor(5.85%,9)+$750*Present value of discounting factor(5.85%,9)
=60.75*6.846317809+$750*0.599490408
=$865.53(Approx).
NOTE:
1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=60.75[1-(1.0585)^-9]/0.0585
=60.75*6.846317809
2.Present value of discounting factor=750/1.0585^9
=$750*0.599490408
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