Question

You are considering a 25-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 11.6125%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Nominal rate calculation:-

=NOMINAL(11.6125%,2)

=11.29%

Calculation of price willing to be paid:-

=PV(rate,nper,pmt,fv)

=PV(11.29%/2,25*2,10%/2*1000,1000)

=892.80