I need help on this question please. Thank you!
Find the price a purchaser should be willing to pay for the given bond. Assume that the coupon interest is paid twice a year.
$12,000 bond with coupon rate 6% that matures in 4 years; current interest rate is 5%
The purchaser should be willing to pay $
Face value = 12000
Coupon payment = 6%*12000/2 = 360 per half year.
Time = 4*2 = 8 half years
Rate of interest = 2.5% per half year.
Price of the bond = PV of the face value + PV of coupon payment
= 12000(1 + 2.5%)^-8 + 360*(1.025^8 - 1)/(0.025*1.025^8)
= $12,430.21
I need help on this question please. Thank you! Find the price a purchaser should be...