Question

Kasey Corp. has a bond outstanding with a coupon rate of 5.88 percent and semiannual payments. The bond has a yield to maturity of 4.5 percent, a par value of $2,000, and matures in 23 years. What is the quoted price of the bond

Answer 1

Price of the bond is $2392.95

Step-by-step explanation:

Price of the bond is the present value of all cash flows of the bond. Price of the bond is calculated by following formula:

According to given data

Coupon payment = C = $2,000 x 5.88% / 2 = $58.8

Number of periods = n = 2 x 23 years = 46 periods

Yield to Maturity = r = 4.5% / 2 = 2.25% semiannually

Price of the Bond = $58.8 x [ ( 1 - ( 1 + 2.25% )^-46 ) / 2.25% ] + [ $2,000 / ( 1 + 2.25% )^46 ]

Price of the Bond = $58.8 x [ ( 1 - ( 1 + 0.0225)^-46 ) / 0.0225 ] + [ $2,000 / ( 1 + 0.0225 )^46 ]

Price of the Bond = $58.8 x [ ( 1 - ( 1.0225)^-46 ) / 0.0225 ] + [ $2,000 / ( 1.0225 )^46 ]

Price of the Bond = $1674.3 + $718.65 = $2,392.95