Answer:
$5,627
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 $4,000
Coupon payment = C = $4,000 x 4.6% = $184 annually = $92 semiannually
Number of periods = n = 20 years x 2 = 40 period
Market Rate = 2.1% annually = 1.05% 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 = 92 x [ ( 1 - ( 1 + 1.05% )^-40 ) / 1.05% ] + [ $4,000 / ( 1 + 1.05% )^40 ]
Price of the Bond = $2,992.30 + $2,634.95
Price of the Bond = $5,627.25
Answer:
Price of the bond =$5626.2518
Explanation:
The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity.
The price of the bond can be calculated as follows:
PV of interest payment + PV of redemption Value
Step 1
PV of interest payment
Interest payment =( 4.6%× $4000)/2
=$ 92
Semi annual yield = 2.1/2 = 1.05 %
PV of interest payment
= 92× (1-(1.0105)^(-20×2))/0.0105)
= 2992.30
Step 2
PV of redemption value
= 4,000 × (1+0.0105)^(-20×2)
= 2633.948
Step 3
Price of bond
= $12992.30+ $2633.94
=$5626.2518
