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dexar [7]
4 years ago
14

Kasey Corp. has a bond outstanding with a coupon rate of 5.88 percent and semiannual payments. The bond has a yield to maturity

of 4.5 percent, a par value of $2,000, and matures in 23 years. What is the quoted price of the bond
Business
1 answer:
OLga [1]4 years ago
4 0

Answer:

Price of the bond is $2392.95

Explanation:

Price of the bond is the present value of all cash flows of the bond. Price of the bond is calculated by following formula:

According to given data

Coupon payment = C = $2,000 x 5.88% / 2 = $58.8

Number of periods = n = 2 x 23 years = 46 periods

Yield to Maturity = r = 4.5% / 2  = 2.25% semiannually

Price of the Bond = $58.8 x [ ( 1 - ( 1 + 2.25% )^-46 ) / 2.25% ] + [ $2,000 / ( 1 + 2.25% )^46 ]

Price of the Bond = $58.8 x [ ( 1 - ( 1 + 0.0225)^-46 ) / 0.0225 ] + [ $2,000 / ( 1 + 0.0225 )^46 ]  

Price of the Bond = $58.8 x [ ( 1 - ( 1.0225)^-46 ) / 0.0225 ] + [ $2,000 / ( 1.0225 )^46 ]  

Price of the Bond = $1674.3 + $718.65   = $2,392.95

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