Answer:
The bond's current market price is $834.67
Explanation:
Market Value of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Price of the bond is calculated by following formula:
According to given data
Assuming the Face value of the bond is $1,000
Coupon payment = C = $1,000 x 9% = $90 annually
Number of periods = n = 23 years =
Current Yield = r = 11% / 2 = 5.5% semiannually
Market Value of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ $1,000 / ( 1 + r )^n ]
Market Value of the Bond = $90 x [ ( 1 - ( 1 + 11% )^-23 ) / 11% ] + [ $1,000 / ( 1 + 11% )^23 ]
Market Value of the Bond = $743.98 + $90.69 = $834.67
