A 10-year 5.5 percent coupon bond was issued 3 years ago. It pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond

The current market price of the bond is $959.09

Explanation:

Price 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. Both of these cash flows discounted and added to calculate the value of the bond.

According to given data

Face value of the bond = F = $1,000  ( Assumed )

Coupon payment = C = $1,000 x 5.5% x 6/12 = $27.5

Number of periods = n = ( 10 years - 3 years ) x 12/6 = 14 period

Yield to maturity = 6.23% annually x 6/12 = 3.115% semiannually

Price of the bond is calculated by following formula:

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond = $27.5 x [ ( 1 - ( 1 + 3.115% )^-14 ) / 3.115% ] + [ $1,000 / ( 1 + 3.115% )^14 ]

Price of the Bond = $308.22 + $650.87

Price of the Bond = $959.09

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b is the correct answer