A bond has PAR value 10000. Its bond interest rate is 8% compounded quarterly. T

Question

A bond has PAR value 10000. Its bond interest rate is 8% compounded quarterly. The purchase price for the bond was 9500. The desired rate of return is 12% per year (again compounded quarterly). The bond is purchased at the exact beginning of a quarterly period. What is the minimum selling price if the bond is to be held for exactly 4 years? For a different investment If the inflation rate during this time is f = 6% annually and one obtains an 8% annual rate of return (both achieved once per year) what is the real rate of return (with effects of inflation taken out)?

Explanation / Answer

a

b

PMT 200 no of period 16 Fv 10000 rate 3% PV $8,743.89

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