Question 4
Jack is planning to buy a 4-year bond with semi-annual coupons and a coupon rate of 4.2 percent p.a. The face value is $1,000. Given an annual yield of 10.5 percent, what is the bond’s current price? (to the nearest cent)
Select one:
a. $798.45
b. $802.44
c. $1227.61
d. $670.73
bond’s current price = 802.44
cash flow= 1000*4.2%=42
| Year | Cash flow | PV factor r= 1/(1+r)t @ 10.5% | PV of cash flow |
| 0 | 0 | 1.00000 | 0.00 |
| 1 | 42 | 0.90498 | 38.01 |
| 2 | 42 | 0.81898 | 34.40 |
| 3 | 42 | 0.74116 | 31.13 |
| 4 | 42 | 0.67073 | 28.17 |
| 4 | 1000 | 0.67073 | 670.73 |
| NPV | 802.44 |
Question 4 Jack is planning to buy a 4-year bond with semi-annual coupons and a coupon...
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