A portfolio manager is assessing a Canadian corporate bond with a face value of $1,000, a coupon rate of 4.5% paid semi-annually, and 5 years remaining until maturity. The current yield to maturity (YTM) for similar-rated bonds is 3.8%. What is the approximate current market price of this bond?

Question: A portfolio manager is assessing a Canadian corporate bond with a face value of $1,000, a coupon rate of 4.5% paid semi-annually, and 5 years remaining until maturity. The current yield to maturity (YTM) for similar-rated bonds is 3.8%. What is the approximate current market price of this bond?

Answer options:

• $987.25
• $1,028.98 ✅ $1,032.88
• $1,045.00

Correct answer: $1,032.88

Explanation: To calculate the price, we discount the semi-annual coupon payments and the face value at maturity using the semi-annual YTM (3.8% / 2 = 1.9%). There are 10 periods (5 years * 2). The semi-annual coupon payment is $22.50 ($1,000 * 4.5% / 2). Using a financial calculator or pricing formula: PV = (22.50 / 1.019^1) + ... + (22.50 / 1.019^10) + (1000 / 1.019^10) ≈ $1,032.88.