Question
In: Economics
Key Data n 12 (years to maturity) m 11 (payments per year) nom. interest rate 2.4%...
Key Data
| n | 12 (years to maturity) |
| m | 11 (payments per year) |
| nom. interest rate | 2.4% |
| Par value | 16,944 |
| bond rate | 3.8% |
| Find: | Purchasing Price, P |
Solutions
Expert Solution
given
n = 12
r = 2.4% per year
coupon rate = 3.8%
fv = 16944
coupon per year = 3.8%*16944 = 643.872
m = 11 payments per year
coupon per m = 643.872/11 = 58.533
we need to find price. To find that we can use pv fucntion in excel
=PV(2.4%/11,12*11,58.533,16944,0)
=19415.03
Here price is higher than fv, i.e this is premium bond. coupon rate > interest rate.
Rahul Sunny answered 1 year agoRelated Solutions
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