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uppose that you invested $14,000 in a corporate bond 12 years ago and have been receiving...

uppose that you invested $14,000 in a corporate bond 12 years ago and have been receiving annual payments of $1,200 on the bond. You will continue to receive annual payments of this same amount for the next 3 years, after which time you will also receive a payment equal to your initial investment as your final payment. Suppose another investor is interested in purchasing the bond from you. What is the minimum price you should accept for the bond if the current rate of interest for similar investments is 8 percent? Instructions: Round your answer to the nearest dollar. Do not round intermediate calculations for (1 + i)t.

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Answer #1

Market int rate = 8%

Present value of Bond = 1200*(P/A,8%,3) + 14000*(P/F,8%,3)

= 1200*2.577097 + 14000*0.793832

= 14206.167

= 14206 (nearest dollar)

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