What is the market price of a 2-year fixed-coupon bond with a face(par) value of$1000 and coupon rate of 4 percent, when the marketis demanding a 6 percent yield to maturity (assume that coupon pay-ments are made annually)?(A)$1035

Finance Nov 25, 2020

What is the market price of a 2-year fixed-coupon bond with a face(par) value of$1000 and coupon rate of 4 percent, when the marketis demanding a 6 percent yield to maturity (assume that coupon pay-ments are made annually)?(A)$1035.50(B)$961.20(C)$1037.72(D)$963.33

Expert Solution

Computation of Market Price of Bond using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Market Price of Bond = ?

Rate = 6%

Nper = 2 years

PMT = $1,000*4% = $40

FV = $,1000

Substituting the values in formula:

=-pv(6%,2,40,1000)

PV or Market Price of Bonds = $963.33

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