Question

In: Economics

an investor buys a bond having a face value of $1,000 and a coupon rate of...

an investor buys a bond having a face value of $1,000 and a coupon rate of 6% payable semiannually. the market rate is now 3% and the bond natures in 15 Years. How much did the investor pay?

Solutions

Expert Solution

Par/Face value 1000
Annual Coupon rate 0.06
semi-annual coupon 30
Present Value = Future value/[(1+(r/m))^mt]
r is the interest rate that is 3%.
t is the year
m is the compounding period that is 2.
mt is the time period.
r/2 0.015
mt 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
future cash flow 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 1030
present value 29.56 29.12 28.69 28.27 27.85 27.44 27.03 26.63 26.24 25.85 25.47 25.09 24.72 24.36 24.00 23.64 23.29 22.95 22.61 22.27 21.94 21.62 21.30 20.99 20.68 20.37 20.07 19.77 19.48 658.96
sum of present values 1360.24
The investor paid $1360.24.

Rahul Sunny answered 3 years ago
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