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Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a...

Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 5.55 percent. If the current market rate is 8.24 percent, what is the maximum amount Pierre should be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.)

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Answer #1

Value of Bond = 1 1 (1+r) Coupon * + MaturityValue (1 + r) 7

r = 0.0824

n = 5 years

Coupon = 5.55% * 1000 = 55.5

= 1- 55.5 (1+0.08245 0.0824 + 1000 (1+0.082455

= 220.200752773 + 673.0713148

= $893.27

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