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Heather Smith is considering a bond investment in LocklearAirlines. The $1,000 par value bonds have...

Heather Smith is considering a bond investment in Locklear Airlines. The $1,000 par value bonds have a quoted annual interest rate of 9 percent and the interest is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 10 years to maturity. Compute the price of the bonds based on semiannual analysis. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

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Expert Solution

Information provided:

Par value= future value= $1,000

Time= 10 years*2= 20 semi-annual periods

Yield to maturity= 12%/2= 6% per semi-annual period

Coupon rate = 9% / 2 = 4.50%

Semi-annual coupon payment= 0.0450*$1,000 = $45

The price of the bond is calculated by computing the present value of the bond.

Enter the below to compute the present value:

FV= 1,000

N= 20

I/Y= 6

PMT= 45

Press the CPT key and PV to compute the present value.

The value obtained is 827.95.

Therefore, the price of the bond is $827.95.

jeff jeffy answered 2 years ago
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