Question

Gugenheim, Inc., has a bond outstanding with a coupon rate of 7.3 percent and annual payments. The yield to maturity is 8.2 percent and the bond matures in 24 years. What is the market price if the bond has a par value of $2,000?

• $1,816.39

• $1,818.78

• $1,812.39

• $1,849.87

• $1,813.60

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =24

Bond Price =∑ [(7.3*2000/100)/(1 + 8.2/100)^k]     +   2000/(1 + 8.2/100)^24

k=1

Bond Price = 1813.6