Question

1. The City of State College plans to issue bonds with a par value of $2,000 that will issue 5% quarterly payments for 5 years. If a purchaser wants earn 4% per quarter over the lifetime of the bond, how much would the purchaser be willing to pay for the bond? 2. A young engineering company is a subcontractor in an effort to develop technology that will reliably detect and respond to release of a nuclear weapon. The company is in need of additional funding and issues a series of $1,000 face value bonds that pay a nominal annual rate of 6% with quarterly payments. The bond matures in 5 years. a. If you buy one bond for $900, but need to sell it immediately after the 12th interest payment for $900, what is your effective annual rate of return?|

Answer 1

ANSWER

1)

Quarterly payment (A) = 2,000 * 0.06 = $120

i = 4%

n = 4 * 5 years = 20

Present value of the bond = F(P/F, i, n) + A(P/A, i, n)

                                          = 2,000(P/F, 4%, 20) + 120(P/A, 4%, 20)

                                          = 2,000(0.4564) + 120(13.590)

                                          = 912.8 + 1,630.8

                                          = $2,543.6

Thus, the purchaser would be willing to pay $2,543.6 for the bond.

---------------------------------------

AS PER CHEGG RULE WE ANSWER ONLY QUESTION PER POST KINDLY POST REMAINING ONE.

================

DEAR STUDENT,

IF YOU HAVE ANY QUERY PLEASE ASK ME IN THE COMMENT BOX,I AM HERE TO HELP YOU.PLEASE GIVE ME POSITIVE RATING..

****************THANK YOU****************