Question 12 (of 34) value 3.89 points Problem 16-6 Bond value [LO2] The Florida

Question

Question 12 (of 34) value 3.89 points Problem 16-6 Bond value [LO2] The Florida Investment Fund buys 78 bonds of the Gator Corporation through a broker The bonds pay 11 percent annual interest. The yield to maturity (market rate of interest) is 12 percent The bonds have a 20 year maturity. Use Appendix B an using the formula and financial calculator methods d Appendix D for an approximate answer but calculate your final answer Using an assumption of semiannual interest payments a. Compute the price of a bond. (Do not round intermediate calculations and round your answer to 2 decimal places.) Price of the bond b. Compute the total value of the 78 bonds. (Do not round intermediate calculations and round your answer to 2 decimal places.) otal Hints References eBook & Resources

Explanation / Answer

Answer a.

Using table values:

Face Value = $1,000
Annual Coupon = 11%*$1,000 = $110
Annual Interest Rate = 12%
Time to Maturity = 20 years

Price of Bond = $110 * PVIFA (12%, 20) + $1,000 * PVIF(12%, 20)
Price of Bond = $110 * 7.4694 + $1,000 * 0.1037
Price of Bond = $925.33

So, current price is $925.33

Using financial calculator:

N = 20, PMT = 110, FV = 1000, I = 12%, PV = 925.33

So, current price is $925.31

Using formula:

Price of Bond = $110 * (1 - (1 / 1.12)^20) / 0.12 + $1,000 / 1.12^20
Price of Bond = $925.31

So, current price is $925.31

Answer b.

Total Value of the 78 Bonds = $925.31 * 78
Total Value of the 78 Bonds = $72,174.18

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