What must be the price of a $ 2 comma 000 bond with a 5.8% coupon rate, annual coupons, and 30 years to maturity if YTM is 10.1 % APR?

Price of bond= $1,196

Explanation:

The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).

Value of Bond = PV of interest + PV of RV

The value of bond would be worked out as follows:

Step 1  

Calculate the PV of interest payments

Annual interest payment

= 5.8% × 2,000× = 116

PV of interest payment

A ×(1- (1+r)^(-n))/r

A- 116

r- annual yield 5.8%

n = 30

= 116 × (1-(1.101)^(-30)/0.101

= 1084.465

Step 2

PV of redemption Value

PV = $2000 × (1.101)^(-30)

= 111.53

Step 3

Price of bond

= 111.53 + 1084.465159 = 1195.99

Price of bond= $1,196

unique selling propisition

i'ts proportional. if the inflation rate is 12% for example, the cpi will be 12% less.

hope it ,

bioteacher101