Javelin Corp. has a $1000 Par Value bond outstanding with a 6% coupon that pays interest semi-annually. The bonds have 2 years until maturity and are rated single A. Other single A bonds with 2 years to maturity are currently priced to yield 2%. What should the Javelin Corp. bonds trade closest to in price?
A $1027.03 B. $1078.04 C. $1099.56 D. $1108.34 E. $1124.20
| Coupen Rate ( per year) = | 6.0% | ||||
| Coupen rate (semi annually) = | 3.00% | ||||
| Maturity = | 2 | ||||
| Period = | 4 | ||||
| Face Value = | $1,000 | ||||
| Coupen amoount semi annually = | 1000*3% | ||||
| $ 30.00 | |||||
| YTM Annually | 2% | ||||
| Semi annually | 1% | ||||
| Present value Annuity Factor ( 1%, 4) = | 1/(1.01)^1 + 1/1.01)^2 +……………. 1/(1.01)^4 | ||||
| 3.9019 | |||||
| price of bond = | Coupen * PVAF(YTM, n) + Redemption value*PVF(YTM,n) | ||||
| 30*3.9019 + 1000 * 1/ (1.01)^4 | |||||
| $ 117.057 | +1000*.9609 | ||||
| $ 1,077.96 |
Answer is option B
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