Question

Lion Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.4 percent paid semiannually and 18 years to maturity. The yield to maturity on this bond is 4.7 percent. What is the dollar price of the bond?

Answer 1

The price of the bond is $1,927.66

Step-by-step explanation:

In order to find the price of the bond we need to know its par/future value, the coupon payments, the yield to maturity and the number of compounding periods.

Future Value = 2,000

Coupon payment = 0.044*2,000=88/2=44

We divide it by 2 because the payments are made semi annually so 2 payments a year.

YTM= 4.7/2= 2.35

Divide by 2 because semi annual payments

Number of periods to maturity = 18*2= 36 because semi annual payments so 36 compounding periods.

Now we input all these values in a financial calculator so compute present value.

PV= 1,927.66