Question

Lincoln Park Co. has a bond outstanding with a coupon rate of 5.66 percent and semiannual payments. The yield to maturity is 6.3 percent and the bond matures in 16 years. What is the market price if the bond has a par value of $2,000?

Answer 1

Information provided:

Par value= future value= $2,000

Coupon rate= 5.66%/2= 2.83%

Coupon payment= 0.0283*2,000= $56.60.

Time= 16 years*2= 32 semi-annual periods

Yield to maturity= 6.30%/2= 3.15%

The market price of the bond is calculated by computing the present value.

The below has to be entered in a financial calculator to compute the present value of the bond:

FV= 2,000

PMT= 56.60

N= 32

I/Y= 3.15

Press the CPT key and PV to calculate the present value.

The value obtained is $1,872.14.

Therefore, the market price of the bond is $1,872.14.