You are considering buying a 10-year, $1,000 par value bond issued by IBM. The coupon rate...
You are considering buying a 10-year, $1,000 par value bond issued by IBM. The coupon rate is 8% annually, with interest being paid semiannually. If you expect to earn a 10% rate of return on this bond, what is the maximum price you should be willing to pay for this IBM bond?
A. $877.11 B. $875.38 C. $898.54 D. $911.46
Homework Answers
price of coupon = Coupon payment per period * [1-(1+i)^-n]/i + par value/(1+i)^n
i = interest rate per period
n = number of periods
=>
Price = 80 * [1-(1+0.1)^-10]/0.1 + 1000/(1+0.1)^10
= 877.11
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