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This bond pricing question involves calculating the fair price of a bond given the coupon rate, credit spread, yield on comparable treasuries, and maturity.

### Steps:
1. **Determine the Coupon Payment:**
   The bond has a 7% coupon rate with a par value of $1,000. Since coupons are paid semi-annually, the coupon payment per period is:
   \[
   \text{Coupon Payment} = \frac{7\% \times 1000}{2} = 35
   \]

2. **Calculate the Yield to Maturity (YTM):**
   The YTM is the sum of the yield on comparable treasuries (3.8%) and the credit spread (7.7%), giving us:
   \[
   \text{YTM (annual)} = 3.8\% + 7.7\% = 11.5\%
   \]
   Since the bond pays semi-annually, the semi-annual YTM is:
   \[
   \text{YTM (semi-annual)} = \frac{11.5\%}{2} = 5.75\%
   \]

3. **Calculate the Present Value of Coupons:**
   The bond has 11 years until maturity, meaning 22 semi-annual periods. The present value of the coupon payments can be found using the formula for the present value of an annuity:
   \[
   PV_{\text{coupons}} = 35 \times \left( 1 - \frac{1}{(1 + 0.0575)^{22}} \right) \div 0.0575
   \]

4. **Calculate the Present Value of the Par Value:**
   The present value of the $1,000 par value is calculated using the formula for the present value of a lump sum:
   \[
   PV_{\text{par}} = \frac{1000}{(1 + 0.0575)^{22}}
   \]

5. **Sum the Present Values:**
   The fair price of the bond is the sum of the present value of the coupon payments and the present value of the par value.

I will now calculate the final fair price using these formulas.The fair price of the bond is approximately **$723.07** when rounded to the nearest penny.

Would you like further details on any part of the calculation?

Here are five related questions for further practice:
1. How does the bond price change if the yield on comparable Treasuries increases?
2. What would the bond price be if it had only 5 years remaining until maturity?
3. How would a higher coupon rate impact the bond’s fair price?
4. What is the effect of changing the coupon payment frequency from semi-annual to annual?
5. How does credit spread influence bond pricing in general?

**Tip:** Bond prices are inversely related to the yield to maturity. As yields rise, bond prices fall.

A 7% coupon bond has a par value of $1,000 and 11 years remaining until maturity. Coupons are paid semi-annually. If the issuer has a credit rating of BBB, the credit spread for BBB bonds over Treasuries is 7.7%, and the yield on comparable Treasuries is 3.8%, what is a fair price for the bond? Enter your answer as a positive number rounded to the nearest penny.

Learn how to calculate the fair price of a 7% coupon bond with 11 years to maturity. Understand the use of yield to maturity (YTM), present value of annuities, and lump sums in determining bond pricing. This calculation involves the principles of finance and time value of money, suitable for college students.

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