Question

Gugenheim, Inc., has a bond outstanding with a coupon rate of 6.3 percent and annual payments. The yield to maturity is 7.5 percent and the bond matures in 19 years. What is the market price if the bond has a par value of $2,000

Answer 1

Answer:

Bond Price​= $1,761

Explanation:

Giving the following information:

Par value= $2,000

Cuon= 0.063*2,000= $126

YTM= 7.5% = 0.075

Periods= 19 years

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 126*{[1 - (1.075^-19)] / 0.075} + [2,000/(1.075^19)]

Bond price= 1,254.84 + 506.13

Bond Price​= $1,761