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alexandr1967 [171]
3 years ago
8

A bond with 16 years to maturity and a semiannual coupon rate of 4.93 percent has a current yield of 5.29 percent. The bond's pa

r value is $2,000. What is the bond's price
Business
1 answer:
zhannawk [14.2K]3 years ago
4 0

Answer:

Price of bond= $1,922.92

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  

Semi-annual interest = 4.93% × 2,000 × 1/2 =49.3

Semi-annual yield = 5.29%/2= 2.65%

PV of interest payment

PV = A (1- (1+r)^(-n))/r

A- 49.3, r-0.02645, n- 16×2

= 49.3× (1-(1.02645)^(-10)/0.02645)  

= 1,055.521

PV of redemption Value

<em>PV = F × (1+r)^(-n) </em>

F-2000, r-0.02645, n- 16 ×2

PV = 2,000 × 1.02645^(-16×2)

PV = 867.402

Price of Bond  

1055.52  + 867.40 =1,922.92

= $1,922.92

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