Question

Valuing Bonds: Lion Corp. has a $2,000 par value bond outstanding with a

coupon rate of 3.8 percent paid semiannually and 13 years to maturity. The

yield to maturity of the bond is 4.9 percent. What is the dollar price of the

bond?

please explain and no handwriting, please

Answer 1

Coupon payment = 3.8 % / 2 * 2000 = 38

t = 13 yr = 13 * 2 = 26 semi annual payments

i = 4.9% / 2 = 2.45% per semi annual period

Present value of the bond = 38 * (P/A, 2.45%,26) + 2000 * (P/F, 2.45%,26)

= 38 *((1 + 0.0245)^26-1)/(0.0245 * (1 + 0.0245)^26) + 2000 * (1 + 0.0245)^-26

= 38 *((1.0245)^26-1)/(0.0245 * (1.0245)^26) + 2000 * (1.0245)^-26

= 38 * 19.06314 + 2000 * 0.532953

= 1790.30