A bond maturing in 10 years pays $50 semi-annually and $1,000upon maturity. Assu

Question

A bond maturing in 10 years pays $50 semi-annually and $1,000upon maturity. Assuming 10% per year compounded semi-annually isthe appropriate market discount rate, what is the present value ofthe bond (round to nearest $10)?
a. $1,010 b. $925 c. $880 d. $1,000 A bond maturing in 10 years pays $50 semi-annually and $1,000upon maturity. Assuming 10% per year compounded semi-annually isthe appropriate market discount rate, what is the present value ofthe bond (round to nearest $10)?
a. $1,010 b. $925 c. $880 d. $1,000

Explanation / Answer

10 years

Par Value of the Bond $1,000 Semi annual Coupon Payment $50 Nubmer of years to Maturity

10 years

Rate of Return (YTM) [10% / 2] 5% Calculating Present Valueof Bond: BondValue = Present Value of the Coupons + Present Value ofthe Face Amount Bond Value = C *[1-1/(1+r)t]/r    +    F /(1+r)t Bond Value= $50 * [1-1/(1+0.05)10*2] /0.05 + $1,000 / (1+0.05)10*2 Bond Value =$50   * [1-1/(1.05)20] / 0.05 +$1,000 / (1.05)20 Bond Value =$50   * 12.46222 +   [$1,000 / 2.653297705] Bond Value = $623.111 +$376.889 Bond Value= $1,000 Answer is Option (d)$1,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.