Question

Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.4 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 4.8 percent. What is the price of the bond?

how can I solve it on a finance calculator?

Answer 1

Solution

Coupon Payment : $2000 * 4.4% *(6/12) : $44

Maturity Amount is $2000

Price of Bond : Coupon Payment ( 1-(1+r)^-n / r) + Facevalue /(1+r)^n)

                      :$44 ( 1-(1+4.8%/2)^-(13*2) / 4.8%/2) + 2000/(1+4.8%/2)^13*2)

                        : $44 (1-(1/(1.024)^26 /.024) + 2000/(1.024)^26

                        $44(1- 0.53976 )/.024) +2000/ 1.85267

                             $44(19.1767) +1079.523

                             $1923.30

price of bond : $1923.30

In financial calculator we will calculate each part separately

To calculate the power of negative . first calculate the positive exponent value and then divide it by 1.

for example to calculate 5^-2 : 1/5^2

Here,

$44 ( 1-(1+4.8%/2)^-(13*2) / 4.8%/2) + 2000/(1+4.8%/2)^13*2)
Do the below calculation first

1-(1+4.8%/2)^-(13*2) / 4.8%/2

1- (1/(1+.048/2)^26)/.048/2

Power of can be calculated by Symbol x^y in calculator

Solve this first (1/(1+.048/2)^26) :0.53976

Then solve .048/2 : 0.024

Then solve (1- 0.53976 ) / 0.024 : 19.1767

Now multiply it with 44 : 843.77

Then solve

2000/(1+4.8%/2)^13*2) : 2000/(1+.048/2)^26

2000/(1.024)^26 : 1079.523

Now add both parts 843.77+1079.523 : 1923.30