A $5,500 bond had a coupon rate of 5.75% with interest paid semi-annually. Jorda
ID: 2798648 • Letter: A
Question
A $5,500 bond had a coupon rate of 5.75% with interest paid semi-annually. Jordan purchased this bond when there were 8 years left to maturity and when the market interest rate was 6.00% compounded semi-annually. She held the bond for 3 years, then sold it when the market interest rate was 5.50% compounded semi-annually. a. What was the purchase price of the bond? $0.00 Round to the nearest cent b. What was the selling price of the bond? $0.00 Round to the nearest cent c. What was Jordan's gain or loss on this investment? amount was $ $0.00 . Next Question
Explanation / Answer
FV = 5500, PMT = 5.75%/2 * 5500, rate = 3%, N = 16
use PV function in Excel
price at which the bond was brought = 5,413.64
FV = 5500, PMT = 5.75%/2 * 5500, rate = 2.75%, N = 10
selling price of the bond = 5559.40
gain = 5559.40 - 5413.64 = 145.76 (exclusing coupons i.e. capital gain)
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