Kasey Corp. has a bond outstanding with a coupon rate of 5.88 percent and semiannual payments. The bond has a yield to maturity of 4.5 percent, a par value of $2,000, and matures in 23 years. What is the quoted price of the bond

Price of the bond is $2392.95

Explanation:

Price of the bond is the present value of all cash flows of the bond. Price of the bond is calculated by following formula:

According to given data

Coupon payment = C = $2,000 x 5.88% / 2 = $58.8

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

Yield to Maturity = r = 4.5% / 2 = 2.25% semiannually

Price of the Bond = $58.8 x [ (1 - (1 + 2.25%) ^-46) / 2.25% ] + [ $2,000 / (1 + 2.25%) ^46 ]

Price of the Bond = $58.8 x [ (1 - (1 + 0.0225) ^-46) / 0.0225 ] + [ $2,000 / (1 + 0.0225) ^46 ]

Price of the Bond = $58.8 x [ (1 - (1.0225) ^-46) / 0.0225 ] + [ $2,000 / (1.0225) ^46 ]

Price of the Bond = $1674.3 + $718.65 = $2,392.95