A $5,000 bond had a coupon rate of 5.25% with interest paid semi-annually. Eric

Question

A $5,000 bond had a coupon rate of 5.25% with interest paid semi-annually. Eric purchased this bond when there were 8 years left to maturity and when the market interest rate was 5.50% compounded semi-annually. He held the bond for 3 years, then sold it when the market interest rate was 5.00% compounded semi-annually. a. What was the purchase price of the bond? $0.00 Round to the nearest cent b. What was the selling price of the bond? $0.00 Round to the nearest cent c. What was Eric's gain or loss on this investment? amount was $ $0.00 .

PLease provide accurate answers through financial calculator

Explanation / Answer

a) Bond Price can be calculated using PV function

N = 8 x 2 = 16, PMT = 5.25% x 5000 / 2 = $131.25, FV = 5,000, I/Y = 5.50%/2 = 2.75% => Compute PV = $4,919.97

b) Similarly, for selling price

N = 5 x 2 = 10, PMT = 131.25, FV = 5000, I/Y = 5%/2 = 2.5% => Compute PV = $5,054.70

c) Gain = 5,054.70 - 4,919.97 = $134.73

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