Answer:
Price of bond = $1,798.27
Explanation:
<em>The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV). </em>
Value of Bond = PV of interest + PV of RV
The value of bond for Gugenheim, Inc.can be worked out as follows:
Step 1
PV of interest payments
annul interest payment
= 5.7% × 2000 = 138
annual yield = 6.9%
Total period to maturity = 13 years
PV of interest payment = 114 × (1- 069^-13)/0.069=958.19
Step 2
PV of Redemption Value
= 2,000 × (1.069)^(-13) = 840.078
Price of bond =958.196089 + 840.078
=1,798.27
Price of bond = $1,798.27
