Question

Lincoln Park Co. has a bond outstanding with a coupon rate of 5.68 percent and semiannual payments. The yield to maturity is 6.5 percent and the bond matures in 17 years. What is the market price if the bond has a par value of $2,000

Answer 1

$1,832.74

Step-by-step explanation:

in order to determine the current market price of the bond we must first determine the present value of its face value and coupon payments:

PV of face value = $2,000 / (1 + 3.25%)³⁴ = $674.17

PV of coupon payments = $56.80 x 20.39742 (PV annuity factor, 3.25%, 34 periods) = $1,158.57

current market price = $1,832.74

since the yield to maturity is higher than the bond's coupon rate, the bond will be sold at a discount.