Question

Your required rate of return on bond is 17% what is the maximum amount you will pay for R10 000 bond that pays quarterly compound rate of 12% and has 5 years to maturity

Answer 1

	No of periods = 5years x 4 quarters = 20 periods
	Interest per period = 12%/4 = 3%		Interest amt = 10,000 x 3% = 300
	DF @ 17% per quarter = 17%/4 = 4.25%
	Compunding period	Cash Flow	DF @ 4.25%	Cash flow x PV
	1	300	0.959	287.77
	2	300	0.920	276.04
	3	300	0.883	264.78
	4	300	0.847	253.99
	5	300	0.812	243.64
	6	300	0.779	233.70
	7	300	0.747	224.18
	8	300	0.717	215.04
	9	300	0.688	206.27
	10	300	0.660	197.86
	11	300	0.633	189.79
	12	300	0.607	182.06
	13	300	0.582	174.64
	14	300	0.558	167.52
	15	300	0.536	160.69
	16	300	0.514	154.14
	17	300	0.493	147.85
	18	300	0.473	141.82
	19	300	0.453	136.04
	20	300	0.435	130.50
	20	10,000	0.435	4,349.89
		Total PV		8,338.20

Maximum amount to be paid is R8,338.2