Answer:
Price of the bond is $104,236,860.
Explanation:
Given:
Coupon rate is 6% or 0.06
Face value = $119,000,000
Coupon payment each year = 0.06×119,000,000
= $7,140,000
Yield to maturity = 7% or 0.007
Maturity period = 30 years
Price of bond = Present value of face value + present value of coupon payment (annuity)
Price of bond = ![119,000,000_{(PV\ 30,0.07)} + 7,140,000_{(PVA\ 30,0.07)}](https://tex.z-dn.net/?f=119%2C000%2C000_%7B%28PV%5C%2030%2C0.07%29%7D%20%2B%207%2C140%2C000_%7B%28PVA%5C%2030%2C0.07%29%7D)
PV of $1 for 7%,30 periods = 0.1314
PVA of $1 for 7%,30 periods = 12.409
Substitute the values in above formula:
Price of bond = (119,000,000 × 0.1314) + (7,140,000 × 12.409)
= 15,636,600 + 88,600,260
= $104,236,860
There will be slight difference in final answer as present value table is used. Excel spreadsheet gives an accurate answer.
So, price of bond is $104,236,860