The Florida Investment Fund buys 70 bonds of the Gator Corporation through a bro

Question

The Florida Investment Fund buys 70 bonds of the Gator Corporation through a broker. The bonds pay 8 percent annual interest. The yield to maturity (market rate of interest) is 10 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.)

Compute the total value of the 70 bonds. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Compute the total value of the 70 bonds. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Explanation / Answer

Face Value=1000

Coupons=8%*1000/2=40

Price=40/1.05+40/1.05^2............40/1.05^40+1000/1.05^40

=40/0.05*(1-1/1.05^40)+1000/1.05^40

=828.40914

So value of 70 bonds=70*828.40914=57988.64

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