P6-25 (similar to) 20 2 F12 Del 0

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Answer 1

Answer #1

When the interest is being paid out half yearly, then interest rates got half and periods double
VALUE OF BOND:
FORMULA = COUPON * PVIFA(YIELD REQD. , YEARS TO MATURITY) + PAR VALUE * PVIF(YIELD REQD. , YEARS TO MATURITY)

BOND A = (500* 9% / 2) * PVIFA(4% , 18) + 500 * PVIF(4% , 18) = 22.5 * 12.659 + 500 * 0.494 = $531.83

BOND B = (500* 11% / 2) * PVIFA(6.5% , 40) + 500 * PVIF(6.5% , 40) = 27.5 * 14.1455 + 500 * 0.0805 = $429.25

BOND C = (500* 14% / 2) * PVIFA(8% , 8) + 500 * PVIF(8% , 8) = 35 * 5.7466 + 500 * 0.5403 = $471.28

Answer 2

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