Question

You have just purchased a municipal bond with a $10,000 par value for $9,500. You purchased it immediately after the previous owner received a semiannual interest payment. The bond rate is 6.6% per year payable semiannually. You plan to hold the bond for 4 years, selling the bond immediately after you receive the interest payment. If your desired nominal yield is 7% per year compounded semiannually, what will be your minimum selling price for the bond? $ 9713 Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is 05.

I have tried solving it, but got it wrong

I have solved the second one!

Answer 1

Solution 1 Face Value of Bonds PV factor (7%/2, 4 years x2) Present Value of Face Value $ 10,000 0.75941 $ 7,594 (a) $ Interest @ 3.3% semi annual PV annuity factor (3.5%, 4x2) Present Value of Interest 400 6.87396 2,750 (b) $ Selling Price of Bond (a+b) $ 10,344 Solution 2: Charlie Amount Invested $ 10,000 Account 1: Interest % Year 0 1 2% 4% 6% 8% 11% Nm in Closing Interest Balance $ 10,000 200 $ 10,200 408 $ 10,608 636 $ 11,244 900 $ 12,144 1,336 $ 13,480 $ $ $ $ $ 4

Account 2: Interest % Year 0 1 N Closing Interest Balance $ 10,000 1,100 $ 11,100 888 $ 11,988 719 $ 12,707 508 $ 13,216 264 $ 13,480 11% 8% 6% 4% 2% $ $ $ $ 3 4 5 $ Account 3 : Interest % Year 0 1 Closing Interest Balance $ 10,000 $ 615 $ 10,615 $ 653 $ 11,269 $ 694 $ 11,962 $ 736 $ 12,698 $ 781 $ 13,480 N 6.15421% 6.15421% 6.15421% 6.15421% 6.15421% 3 st 5 5 Based on the available balance the end of year 5, which alternative is Charlie's best choice? All alternatives are equal Year 5 Balance, Alternative 1 : Year 5 Balance, Alternative 2: Year 5 Balance, Alternative 3 : $ $ $ 13,480 13,480 13,480

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