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2 April, 13:46

Lion Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.4 percent paid semiannually and 18 years to maturity. The yield to maturity on this bond is 4.7 percent. What is the dollar price of the bond?

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  1. 2 April, 16:48
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    The price of the bond is $1,927.66

    Explanation:

    In order to find the price of the bond we need to know its par/future value, the coupon payments, the yield to maturity and the number of compounding periods.

    Future Value = 2,000

    Coupon payment = 0.044*2,000=88/2=44

    We divide it by 2 because the payments are made semi annually so 2 payments a year.

    YTM = 4.7/2 = 2.35

    Divide by 2 because semi annual payments

    Number of periods to maturity = 18*2 = 36 because semi annual payments so 36 compounding periods.

    Now we input all these values in a financial calculator so compute present value.

    PV = 1,927.66
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