You are considering a 15-year, $1,000 par value bond. Its coupon rate is 8%, and interest...

You are considering a 15-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 7.9945%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

Solutions

Expert Solution

EAR = 7.9945%

APR(semi-annually) = 2[(1.079945)^1/2 - 1] = 7.8408%

Calculating Price of Bond,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 40, N = 30, I = 0.078408/2]

PV = $1,013.90

Bond Price = $1,013.90

jeff jeffy answered 1 year ago

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