You are considering a 10-year, $1,000 par value bond. Its coupon rate is 8%, and

Question

You are considering a 10-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 10.96%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest cent.

I see that there are currently several versions of the same question however, they are not clear on the procedure I would use to calculate it with my financial calculator. Any help would be greatly appreciated.

Explanation / Answer

first convert effective annual rate into semi annual rate= (1 + .1096)1/2 = 1.0533 = 5.33 %

now use financial calculator

no. of period = 10 * 2 = 20

future value = 1000

payment = .04*1000 = 40

req rate = 5.33%

use financial calculator

present value = 975.38

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