Question

An investor purchases a 15-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond? (FV of $1 PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice Ο $1000. Ο Ο Ο $881.

Answer 1

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Correct option is: B. $846
Workings:
Cash flow	Period	Amount	P.V Factor @ 5%	Present Value
Maturity value	30	$          1,000	0.23138	$                  231
Interest (annuity)	1 to 30	$                40	15.37245	$                  615
Issue price of bonds				$                  846
Number of semiannual periods	=	Number of years X 2
	=	15 years X 2
	=	30 years
Interest payment	=	$                40
Semiannual market interest rate	=	5%