Leann just sold a $10,000 par value bond for $9,800. The bond interest rate was 5.5%...
Leann just sold a $10,000 par value bond for $9,800. The bond
interest rate was 5.5% per year payable quarterly. Leann owned the
bond for 3 years. The 1st interest payment she received was 3
months after she bought the bond. She sold it immediately after
receiving her 12th interest payment. Leann’s yield on the bond was
10.5% per year compounded quarterly. Determine the price she paid
when she purchased the bond.
Homework Answers
quarterly Interest = 5.5%*10000/4 = 137.50
Rate per quarter = 10.5%/4
Price of Bond = PV of Coupons + PV of Sales Price =
137.50*(1-(1+10.5%/4)-12)/10.5% +
9800/(1+10.5%/4)12 = 8580.88
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