Question

Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.9 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 3.8 percent. What is the price of the bond? $_____

Answer 1

Semi annual coupon rate = 4.9%/2 = 2.45%

Semi annual coupon amount = Par value * Coupon rate

= 2000*2.45% = 49

Semi annual periods left to maturity = 13*2 = 26 periods

Semi annual yield = 3.8/2 = 1.9%

Price of Bond =

Coupon amount* Present value annuity factor (r,n) + Par value*Present value interest factor (r,n)

= 49*Present value annuity factor (1.9%,26) + 2000*Present value interest factor (1.9%,26)

= 49*20.3676 + 2000*0.613

= 998.0124 + 1226 = 2224.0124 i.e. 2224

Price of Bond = $2224