Question

21. A firm has a $2,000 par value bond outstanding with a coupon rate of 4.9% paid semi -annually with 13 years to maturity. What is the price of the bond?

Answer 1

Answer:

$2,224.04

Explanation:

Par value or face value=$2000

Coupon rate is 4.9%, as the interest is paid semiannually, semiannual coupon rate=4.9%/2=2.45%

Coupon payments=Semiannual coupon rate*Face value=2.45%*$2000=$49

Time to maturity=13 years, as the interest is paid semiannually, total number of periods=13*2=26

The bond yield=3.8%, semiannual yield=3.8%/2=1.90%

Using Excel PV($2,000, $49, 26, 1.90%) = $2,224.04

Hence, the value of the bond = $2,224.04