Big House Nursery Inc. Has issued 20minusyear $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 10%. The current price of the bond is .

The current price of the bond is $800

Explanation:

The Yield to Maturity (YTM) is the long term yield on a bond. It is the yield that is expected from the bond based on the assumption that if the bond is purchased today and is held to maturity.

The YTM can be calculated as presented in the attachment to the answer.

As we already know the YTM and the other components of YTM formula, we can input these in the formula to calculate the Current Price of the bond.

Current Price of the bond will be,

0.1  =  80 + [(1000 - P) / 20]  /  [(1000 + P) / 2]

0.1 = 80 + [50 - 0.05P]  /  [500 + 0.5P]

0.1 * (500 + 0.5P)  =  80 + 50 - 0.05P

50 + 0.05P = 130 - 0.05P

0.05P + 0.05P  =  130 - 50

0.1P = 80

P = 80 / 0.1

P = $800

P = $800

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