Question

Kasey Corp. has a bond outstanding with a coupon rate of 5.96 percent and semiannual payments. The bond has a yield to maturity of 5.3 percent, a par value of $2,000, and matures in 19 years. What is the quoted price of the bond?

Answer 1

The value of the bond is computed as shown below:

The coupon payment is computed as follows:

= 5.96% / 2 x $ 2,000

= $ 59.6

The YTM will be as follows:

= 5.3% / 2

= 2.65% or 0.0265

N will be as follows:

= 19 x 2

= 38

So, the price of the bond is computed as follows:

Bonds Price = Coupon payment x [ [ (1 - 1 / (1 + r)ⁿ ] / r ] + Par value / (1 + r)ⁿ

= $ 59.6 x [ [ (1 - 1 / (1 + 0.0265)³⁸ ] / 0.0265 ] + $ 2,000 / 1.0265³⁸

= $ 59.6 x 23.76850326 + $ 740.269327

= $ 2,156.87