Question

An investor purchases a 12-year, $1,000 par value bond that pays semiannual interest of $45. If the semiannual market rate of interest is 5%, what is the current market value of the bond? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Ο $969. Ο $1,000. Ο $931. Ο $1,621.

Answer 1

The future cash flow of $45 per semi annual is to be discounted at market value of 5%. To discount bthe future cash flow we have to PVA of $1

PVA of future cashflow = $45* PVF(r,n)

= $45* PVF(5,24)

=$45*13.80

=$621

Amount invested in bond will be returned after 12years.

So present value of $1000 = $1000/(1.05)^24

= $ 310

So present value of the bond = present value of future cashflow+ present value of amount bond

= 621+310

=$931

So answer is C -$931