Homework Answers
A.$90,119.
value of bond = [present value of annuity factor * interest payment] + [present value factor * face value]
here,
present value of annuity factor (from present value of annuity table ) at 4.5% (i.e 9% market rate *6 months/12) for 50 periods.
(i,e 25 years * 2 =>50)
=>[1-(1+r)^(-n)]/r
=>[1 - (1.045)^(-50)]/0.045.
=>19.7620089.
interest payment =$100,000*8%*6/12
=>$4000.
present value factor = 1/(1.045)^50
=>0.11070965.
value of the bond = [19.7620089*4000]+[0.11070965*100,000]
=>$90,119.
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