Answer:
Price of the bond is $2392.95
Explanation:
Price of the bond is the present value of all cash flows of the bond. Price of the bond is calculated by following formula:
According to given data
Coupon payment = C = $2,000 x 5.88% / 2 = $58.8
Number of periods = n = 2 x 23 years = 46 periods
Yield to Maturity = r = 4.5% / 2 = 2.25% semiannually
Price of the Bond = $58.8 x [ ( 1 - ( 1 + 2.25% )^-46 ) / 2.25% ] + [ $2,000 / ( 1 + 2.25% )^46 ]
Price of the Bond = $58.8 x [ ( 1 - ( 1 + 0.0225)^-46 ) / 0.0225 ] + [ $2,000 / ( 1 + 0.0225 )^46 ]
Price of the Bond = $58.8 x [ ( 1 - ( 1.0225)^-46 ) / 0.0225 ] + [ $2,000 / ( 1.0225 )^46 ]
Price of the Bond = $1674.3 + $718.65 = $2,392.95
