Yan Yan 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 of the bond is 4.3 percent. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) Price

The answer is $2,174.18

Explanation:

Yield to Maturity is the rate of return that a bondholder is expecting on his bond.

N(Number of years)= 46 years (23x 2)

I/Y(Yield to Maturity) =2.15% (4.3%/2)

PV(Present Value) = $?

PMT(Payment) = 2.45% of $2,000(4.9%/2) = $49

FV(Future value) = $2,000

Using Financial calculator:

The price of the bond is:

$2,174.18

$2,174.18

Explanation:

Price of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Both of these cash flows discounted and added to calculate the value of the bond.

According to given data

Face value of the bond is $2,000

Coupon payment = C = $2,000 x 4.9% = $98 annually = $49 semiannually

Number of periods = n = 23 years x 2 = 46 period

Market Rate = 4.3% annually = 2.15% semiannually

Price of the bond is calculated by following formula:

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Price of the Bond = 49 x [ ( 1 - ( 1 + 2.15% )^-46 ) / 2.15% ] + [ $2,000 / ( 1 + 2.15% )^46 ]

Price of the Bond = $2,174.18

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