Answer: Given Data , Annuai Interest Rate = 8% Bond Par value = $1,000 Semi annual rate of retun = 10% / 2 = 5% Number of periods = 10 x 2 = 20 Semi-Annual interest Coupon amount = $1,000 x 8%/2 = $40 |
Value of bond = Coupon
amount x PVAF (5% , 20) + Bond value x PVF(5%,20 years) = ($40 x 12.462) + ($1000 x 0.3769) = $498.48 + $376.90 = $875.38 |
Value of bond = $875.38 |
From given options, option ( c ) is correct i.e., $875.38 |
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