You are considering a 10-year, $1,000 par value bond. Its coupon rate is 10%, and interest...

You are considering a 10-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 11.2510%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

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Expert Solution

Here interest effective interest rate is given hence we can calculate bond price assuming annual coupon payment.

Computation Of Bond Price

a	Annual Coupon Amount	$ 100.00

b	Present Value Annuity Factor for (10 Years,11.251%)	5.827759
c	Present Value Of Annual Interest (a*b)	$ 582.78
d	Redemption Value	$ 1,000.00
e	Present Value Of (10 Years,11.251%)	0.34432
g	Present Value Of Redemption Amount (d*e)	$ 344.32
f	Bond price(c+g)	$ 927.09

jeff jeffy answered 1 year ago

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