Panera Bread has an 8.8 percent coupon bond outstanding that matures in 12 years. The bond pays interest quarterly. What is the market price per bond if the face value is $1,000 and the yield to maturity is 5.4 percent? $1,022.80 $1,099.85 $1298.85 $1199.96 $1,357.52

Raiden Barr

Raiden Barr

Answered question

2022-10-16

Panera Bread has an 8.8 percent coupon bond outstanding that matures in 12 years. The bond pays interest quarterly. What is the market price per bond if the face value is $1,000 and the yield to maturity is 5.4 percent?
$1,022.80
$1,099.85
$1298.85
$1199.96
$1,357.52

Answer & Explanation

occuffick24

occuffick24

Beginner2022-10-17Added 13 answers

The price is computed as follows:
The coupon payment is computed as follows:
= 8.8  % 4 × $ 1 , 000 (As the payments are being made quarterly, hence divided by 4)
= $ 22
The YTM is computed as follows:
= 5.4  % 4 (As the payments are being made quarterly, hence divided by 4)
= 1.35% or 0.0135
N is computed as follows:
= 12 × 4 (As the payments are being made quarterly, hence multiplied by 4)
= 48
So, the value of the bond is computed as follows:
=  Coupon payment  × [ [ ( 1 1 / ( 1 + r ) n ] / r ] +  Par value / ( 1 + r ) n
= $ 22 × [ [ ( 1 1 / ( 1 + 0.0135 ) 48 ] / 0.0135 ] + $ 1 , 000 / 1.013548
= $ 22 × 35.15826302 + $ 525.3634492
= 1 , 298.85
Do ask in case of any doubts.

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