Answer:
The amount Chris pay for his bond = $109.44
Explanation:
Given that:
Chris purchased a 10 year 100 par value bond where 6% coupons are paid semiannually. Cheryl purchased a 100 par value bond where 6% coupons are paid semiannually.
The Price of the Cheryl's bond is 6% given that it is purchased at at par value where 6% coupons are paid.
Suppose The yield for Chris’s bond is 80% of the yield for Cheryl’s bond.
Then:
Price of the Cheryl's bond = Present Value of the coupon in perpetuity
∴
Yield=
Yield =0.03
Yield = 3%
The Yield of Chris = 0.8 × 3
The Yield of Chris = 2.4% semiannual
However;
Present Value of the coupons is:
PV = 47.21
The PV of the face value =
The PV of the face value =
The PV of the face value =
The PV of the face value =
The PV of the face value = 62.230
Finally:
The amount Chris pay for his bond = PV of the coupons + PV of the face value
The amount Chris pay for his bond = 47.21 + 62.230
The amount Chris pay for his bond = $109.44