Today you buy a Wal-Mart bond with $10,000 par value and $500 semi-annual coupon payments. The...

Today you buy a Wal-Mart bond with $10,000 par value and $500 semi-annual coupon payments. The bond matures in 11 years. You plan to hold the bond to its maturity. Wal-Mart will send you a check for the coupon payment every six months, with the first check arriving six months from today. At the maturity of the bond, Wal-Mart will send you a separate check for $10,000. You assume that Wal-Mart will not go bankrupt before the bond matures.

Over the life of the bond, the bond price will fluctuate, perhaps between $9,000 and $11,000. Thus, each coupon payment will be too small to reinvest in this Wal-Mart bond. Instead, you plan to deposit your coupons in a savings account that you expect will pay an APR of 2.48% per year, with semi-annual compounding.

What is the future value of your investment?

Round your answer to the nearest dollar.

Expert Solution

Use FV function in EXCEL to find the future value of coupon investments.

=FV(rate,nper,pmt,pv,type)

Please remember that it is semi-annual compounding

rate=2.48%/2=1.24%

nper=2*11=22

pmt=500

pv=0

type=0

=FV(1.24%,22,-500,0,0)=$12,557.89

The total future value of the investmnet=$12,557.89+$10,000=$22,557.89

jeff jeffy answered 2 years ago

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