Question

Kasey Corp. has a bond outstanding with a coupon rate of 5.64 percent and semiannual payments. The bond has a yield to maturity of 6.1 percent, a par value of $2,000, and matures in 15 years. What is the quoted price of the bond

Answer 1

= $1910.42

Step-by-step explanation:

The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).

Value of Bond = PV of interest + PV of RV

The value of bond for Kasey Corp can be worked out as follows:

Step 1

PV of interest payments

Semi annul interest payment

= 5.64% × 2000 × 1/2

= $56.4

Semi-annual yield = 6.1/2 = 3.05% per six months

Total period to maturity

= (2 × 15) = 30 periods

PV of interest =

= 56.4× (1- (1+0.0305^(-30)/0.0305)

= $1098.354

Step 2

PV of Redemption Value

= 2,000 × (1.0305)^(-30)

= 812.063

step 3

Price of bond

= 1098.35 + 812.06

= $1910.42