solve the following problems A corporate bond has a face value of $1,000, with a
ID: 2506758 • Letter: S
Question
solve the following problems
A corporate bond has a face value of $1,000, with a maturity 20 years from today. It pays interest semi-annually at a rate of 8%. Interest rates on similar bonds today only pay 6%. What is the market value of the bond tody, to the nearest dollar?
Fred wants to buy a 20-year corporate bond of $1,000 which pays 6% semi-annually. He will get $30 every 6 months (including the last month) plus the face value at the end. If Fred needs a return of 8%, what is the most he will pay for the bond, to the nearest dollar?
Explanation / Answer
MV of bond = 40*PVIFA(3,40)+1000/(1.03)^40 = 40*23.1148+1000/(1.03)^40 = $1231.15
MV = 30*PVIFA(4,40)+1000/1.04^40 = 30*19.7928+(1000/1.04^40) = $802.07
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.