A bond is being advertised in the newspaper for sale. The original face value of the...

A bond is being advertised in the newspaper for sale. The original face value of the bond is $15,000 and pays a bond rate of 6% compounded monthly. The bond still has a remaining life of three years. How much should you pay for the bond now if you want to have a return on your investment of 12% compounded monthly?

Expert Solution

Coupon payment = 6% * 15000 / 12 = 75

t = 3*12 = 36 months

i = 12% / 12 = 1% per month

Present value of bond = 75*(P/A,1%,36) + 15000*(P/F,1%,36)

= 75*30.107505 + 15000*0.698925

= 12741.94

Rahul Sunny answered 2 years ago

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