What should you pay for a $1,000 10-year 10% Coupon rate bond paid semi-annually, when the...

Question

Question

What should you pay for a $1,000 10-year 10% Coupon rate bond paid semi-annually, when the required return market rate is 5%?

Answer 1

Answer #1

Answer

C. $1,389.73

Calculations:

Value of Bond = 50 * PVAF ( 20 years, 2.5%) + 1,000 * PVF ( 20 years, 2.5%)

= (50 * 15.58) + (1,000* 0.06102)

= 779.53 + 610.20

= $ 1,389.73

Note: PVAF Table

TABLE4 Present Value of an Ordinary Annuity of $1 1- (1 + in PVA = - n/i 1.0% 1.5% 2.0% 1 0.99010 0.98522 0.98039 2 1.97040 1

PVF Table

TABLE 2 Present Value of $1 PV - in NI 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 1 099010 0.98522 0.98039 0.97561 0.97087 0.96618 0.

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Answer 2

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