The Florida Investment Fund buys 98 bonds of the Gator Corporation through a bro
ID: 2717376 • Letter: T
Question
The Florida Investment Fund buys 98 bonds of the Gator Corporation through a broker. The bonds pay 12 percent annual interest. The yield to maturity (market rate of interest) is 14 percent. The bonds have a 20-year maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Using an assumption of semiannual interest payments:
a. Compute the price of a bond. (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. Compute the total value of the 98 bonds. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Explanation / Answer
Assuming face value of a bond= $1000 Discount done at semi annual YTM =7% Period Coupon+maturity Discount factor@7% PV of cash flow 1.00 60.00 0.9346 56.0748 2.00 60.00 0.8734 52.4063 3.00 60.00 0.8163 48.9779 4.00 60.00 0.7629 45.7737 5.00 60.00 0.7130 42.7792 6.00 60.00 0.6663 39.9805 7.00 60.00 0.6227 37.3650 8.00 60.00 0.5820 34.9205 9.00 60.00 0.5439 32.6360 10.00 60.00 0.5083 30.5010 11.00 60.00 0.4751 28.5056 12.00 60.00 0.4440 26.6407 13.00 60.00 0.4150 24.8979 14.00 60.00 0.3878 23.2690 15.00 60.00 0.3624 21.7468 16.00 60.00 0.3387 20.3241 17.00 60.00 0.3166 18.9945 18.00 60.00 0.2959 17.7518 19.00 60.00 0.2765 16.5905 20.00 60.00 0.2584 15.5051 21.00 60.00 0.2415 14.4908 22.00 60.00 0.2257 13.5428 23.00 60.00 0.2109 12.6568 24.00 60.00 0.1971 11.8288 25.00 60.00 0.1842 11.0550 26.00 60.00 0.1722 10.3317 27.00 60.00 0.1609 9.6558 28.00 60.00 0.1504 9.0241 29.00 60.00 0.1406 8.4338 30.00 60.00 0.1314 7.8820 31.00 60.00 0.1228 7.3664 32.00 60.00 0.1147 6.8845 33.00 60.00 0.1072 6.4341 34.00 60.00 0.1002 6.0132 35.00 60.00 0.0937 5.6198 36.00 60.00 0.0875 5.2521 37.00 60.00 0.0818 4.9085 38.00 60.00 0.0765 4.5874 39.00 60.00 0.0715 4.2873 40.00 1,060.00 0.0668 70.7872 Bond Price = $ 867 a Price of a Bond=$867 b Price of 98 Bonds = 98*$867=$ 84,966
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