Lincoln Park Co. has a bond outstanding with a coupon rate of 5.66 percent and semiannual payments. The yield to maturity is 6.3
percent and the bond matures in 16 years. What is the market price if the bond has a par value of $2,000?
1 answer:
Answer:
Market price of Bond = $1872.135629 rounded off to $1872.14
Explanation:
To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = 2000 * 0.0566 * 1/2 = $56.6
Total periods (n)= 16 * 2 = 32
r = 6.3% * 1/2 = 3.15% or 0.0315
The formula to calculate the price of the bonds today is attached.
Bond Price = 56.6 * [( 1 - (1+0.0315)^-32) / 0.0315] + 2000 / (1+0.0315)^32
Bond Price = $1872.135629 rounded off to $1872.14
You might be interested in
Answer:
attached table
Explanation:
We use goal seek of excel to determinate the market rate:
Which is the rate that discounting the coupon payment and maturity matches the 5,421,236 we receive for the bond:
C 200,000.000
time 10
rate 0.<em>030117724</em>
PV $1,705,016.0533
Maturity 5,000,000.00
time 10.00
rate <em>0.030117724</em>
PV 3,716,219.95
PV c $1,705,016.0533
PV m $3,716,219.9467
Total $5,421,236.0000
Now, we determiante the schedule by doing as follow:
carrying value x market rate = interest expense
cash outlay per period: face value x coupon rate
the amortization will be the difference
after each payment we adjust the carrying value by subtracting the amortization
