Tim purchases a 30-year 100 par-value bond with an annual coupon rate of 2r% com

Question

Tim purchases a 30-year 100 par-value bond with an annual coupon rate of 2r% compounded semiannually. Coupon payments are made every six months, starting six months after the bond is issued, and the bond redeems at par-value. If the bond is priced to yield 6% compounded semiannually, then Tim will pay 14.25% more for the bond then he would pay if the bond was priced to yield 7% compounded semiannually.

Find the amount that Tim will pay if the bond is priced to yield 7% compounded semiannually.

(a) 71.61

(b) 76.94

(c) 81.31

(d) 84.64

(e) 87.53

Explanation / Answer

Answer should be E as you will get this by multplying this number 1.1425 by 87.53 so that you will get 100.

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