An investor purchases a 7-year, $1,000 par value bond that pays
semianual interest of $40. If the semianual market rate of interest
is 5%, what is the current market value of the bond?
Homework Answers
Answer: $901
Calculations:
| Present value of cash interest | $396 |
| [$40 x 0.8986 Present value annuity factor at 5% for 14 periods*] | |
| Present value of face value | $505 |
| [$1,000 x 0.5051 Present value factor at 5% for 14 periods*] | |
| Current market value | $901 |
*7 years x 2 semi-annual interest payments = 14 periods
Thus, Option-i is correct and remaining options are incorrect.
Add Answer to:
An investor purchases a 7-year, $1,000 par value bond that pays
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