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In: Finance

Jason purchased 8% quarterly bonds that have a par value of $20,000 and a maturity date...

Jason purchased 8% quarterly bonds that have a par value of $20,000 and a maturity date
8 years from now. What is the price that Jason can sell the bonds four years from now if
he wants to get a 12% rate compounded quarterly on his investment?

Solutions

Expert Solution

Price of Bond = PV of Future CFs from that bond.

As the Price is required after 4 Years, CFs of Year 5 onwards is required.

Period CF PVF @3% Disc CF
1 $      400.00     0.9709 $      388.35
2 $      400.00     0.9426 $      377.04
3 $      400.00     0.9151 $      366.06
4 $      400.00     0.8885 $      355.39
5 $      400.00     0.8626 $      345.04
6 $      400.00     0.8375 $      334.99
7 $      400.00     0.8131 $      325.24
8 $      400.00     0.7894 $      315.76
9 $      400.00     0.7664 $      306.57
10 $      400.00     0.7441 $      297.64
11 $      400.00     0.7224 $      288.97
12 $      400.00     0.7014 $      280.55
13 $      400.00     0.6810 $      272.38
14 $      400.00     0.6611 $      264.45
15 $      400.00     0.6419 $      256.74
16 $      400.00     0.6232 $      249.27
16 $ 20,000.00     0.6232 $ 12,463.34
Price of Bond after 4 Years $17,487.78

jeff jeffy answered 1 month ago
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