Question

Determine the market price of a $225,000, 10-year, 4% (pays interest semiannually) bond issue sold to yield an effective rate of 6%. (Round factor values to 5 decimal places, e.g. 1.25125 and final answer to 0 decimal places, e.g. 458,582.)

Answer 1

Solution: 225000 2.00% Par value semi annual coupon rate = 4%/2 semi annual yield to maturity = 6%/2 Number of payments = 10*2 3.00% 20 PV of bond = PV of interest + PV of maturity PV of interest Semi annual interest = 225000*2% x PVIFA(3%,20)** PV of interest 4,500.00 14.87747 66,948.62 PV of maturity value Par value X PVIF(3%,20)** PV of maturity value 225,000.00 0.55368 124,578.00 PV of bond/Price of bond 191,527 14.87747 **PVIFA(3%,20) formula (1-(1.031-20)/0.03 (1-(1+r)^-n)/ 1/(1.03^20) 0.55368 ***PVIF(3%,20) formula = 1/(1+r)^n