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An investor purchases a 5-year, $1,000 par value bond that pays semiannual interest of $50. if the semiannual market rate od interest is 6%, what is the current market value of the bond? (FV of $1, PV of $1, PVA of $1, FVAD of $1 and PVAD OF $1)
please use factors drom the table provided.
please help me answer this before 3:30pm


TABLE 6 Present Value of an Annuity Due of $1 PVAD - [ 1? The w 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4,5% 5.0% 5.5% 6.0% 7.0%
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Answer #1

Correct Answer:

The current market value of bond is $ 1167

Working:

Annual Rate

Applicable rate

Face Value

$                1,000

Market Rate

6.00%

3.00%

Term (in years)

5

Coupon Rate

10.00%

5.00%

Total no. of interest payments

10

Note: the Bond pays $ 50 on interest semi-annually, which is 10% interest, therefore the coupon rate will be 10% .

Calculation of Issue price of Bond

Bond Face Value

Market Interest rate (applicable for period/term)

PV of

$                          1,000

at

3.00%

Interest rate for

10

term payments

PV of $1

0.74409

PV of

$                          1,000

=

$                      1,000

x

0.74090

=

$                          740.90

A

Interest payable per term

at

5.0%

on

$                                1,000

Interest payable per term

$                                50

PVAF of 1$

for

3.0%

Interest rate for

10

term payments

PVAF of 1$

$                     8.53020

PV of Interest payments

=

$ 50.00

x

8.53020

=

$                          426.51

B

a

Bond Value (A+B)

$                            1,167

End of Answer.

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