The Florida Investment Fund buys 58 bonds of the Gator Corporation through a bro
ID: 2719670 • Letter: T
Question
The Florida Investment Fund buys 58 bonds of the Gator Corporation through a broker. The bonds pay 10 percent annual interest. The yield to maturity (market rate of interest) is 12 percent. The bonds have a 10-year maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Compute the price of a bond. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Compute the total value of the 58 bonds. (Do not round intermediate calculations and round your answer to 2 decimal places.)
The Florida Investment Fund buys 58 bonds of the Gator Corporation through a broker. The bonds pay 10 percent annual interest. The yield to maturity (market rate of interest) is 12 percent. The bonds have a 10-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:Explanation / Answer
Assuming face value of the bond is $1,000
Annual Interest Payment = 10% of $1,000 = $100
Semi-Annual Interest Payment = $50
YTM = 12% of 6% for 6-months
Price of the Bond = $50*PVIFA(20,6%) + $1,000*PVIF(20,6%)
= $573.50 + $311.80
= $885.30
Total Value of 58 Bonds = 58 * $885.30 = $51,347.17
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