Question

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.

Answer 1

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