Question

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?

Answer 1

Market price of Bond = $1872.135629 rounded off to $1872.14

Step-by-step 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