Question

Lion Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.9 percent paid semiannually and 23 years to maturity. The yield to maturity on this bond is 4.3 percent. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Price of a bond is mathematically represented as: 1 1 (1+ i)" P C i (1) where P is price of bond, with periodic coupon C, n periods to maturity, periodic YTM i and face value M.

For this question,

M = $2000, n = 23 * 2 = 46 semi-annual periods, i = 4.3%/2 = 2.15% (semi-annually), C = 4.9% * $2000/2 = $49 (semi-annually)

1 (1+0.0215)40 2000 P 49* (10.0215)46 0.0215

P = $1,422.44+ $751.74

P = $2,174.18