Answer:
Price of the bond = $4,122.36
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 Yan Yan Corp. be worked out as follows:
Step 1
<em>PV of interest payments </em>
Semi annul interest payment
= 4.6% × 5,000 × 1/2 = 115
Semi-annual yield = 4.1%/2 = 2.05 % per six months
Total period to maturity (in months) = (2 × 21) = 41 periods
PV of interest =
115 × (1- (1+0.0205)^(-21)/0.0205)=1,946.47
Step 2
<em>PV of Redemption Value </em>
= 5000 × (1.0205^(-41) = 2,175.89
<em>Step 3:Price of the bond </em>
Total present Value = 1,946.47 + 2,175.89 = 4,122.36
Price of the bond = $4,122.36
