Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4%, based on semiannual compounding. What is the bond's price?
Select the correct answer.
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Coupon = (0.0625 * 1,000) / 2 = 31.25
Number of periods = 10 * 2 = 20
Rate = 4% / 2 = 2%
Price of Bond = Coupon * [ 1 - 1 / ( 1 + r)n] / r + FV / ( 1 + r)n
Price of Bond = 31.25 * [ 1 - 1 / ( 1 + 0.02)20] / 0.02 + 1000 / ( 1 + 0.02)20
Price of Bond = 31.25 * 16.351433 + 672.971333
Price of Bond = $1,183.95
Keys to use in a financial calculator:
2nd I/Y 2
FV 1000
PMT 31.25
N 20
I/Y 4
CPT PV
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