Answer:
$43,204
Explanation:
Price of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Both of these cash flows discounted and added to calculate the value of the bond.
According to given data
Face value of the bond is $20,000
Coupon payment = C = $20,000 x 4% = $800 Quarterly
Number of periods = n = 20 years x 4 = 80 periods
Market Rate = 1 ½ % quarterly = 1.5% quarterly
Price of the bond is calculated by following formula:
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Price of the Bond = 800 x [ ( 1 - ( 1 + 1.5% )^-80 ) / 1.5% ] + [ $20,000 / ( 1 + 1.5% )^80 ]
Price of the Bond = $37,125.86 + $6,077.8 = $43,203.66 = $43,204
