1. Pierre Dupont just received a cash gift from his grandfather. He plans to inv

Question

1. Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 5.5 percent. If the current market rate is 7.25 percent, what is the maximum amount Pierre should be willing to pay for this bond? (Round answer to 2 decimal places)

2. BA Corp is issuing a 10-year bond with a coupon rate of 8 percent. The interest rate for similar bonds is currently 6 percent. Assuming annual payments, w)hat is the value of the bond? (Round answer to 2 decimal places)

Explanation / Answer

1. Maximum Amount Pierre should be willing to pay = 55 * PVAF(7.25%, 5years) + 1,000 * PVF(7.25%, 5years) = $928.72

2. Value of the Bond = 80 * PVAF(6%, 10years) + 1,000 * PVF(6%, 10years) = $1,147.20

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