You bought a bond 8 years ago for $1,000. It has a $1,200 face value and a nominal annual bond rate of 10%, paid semiannually
(so it pays 5% of the face value every 6 months). You'd like to sell it now and get a nominal annual yield of 18%. How much should you sell the bond for?
1 answer:
Answer:
The correct answer is $1990.10.
Explanation:
According to the scenario, the given data are as follows:
Present value = $1,000
Time period = 8 years
Time period (Nper) ( semiannual) = 16
Bond rate semiannual = 5%
So, Semiannual Payment (pmt) = $1,200 × 5% = $60
Annual yield = 18%
So, Semiannual yield ( rate ) = 9%
So, by putting all this in financial calculator, we get the following result.
Attachment is attached below.
The future value is $1,990.10.
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The amount that Harry should pay for the investment is the present value of the net income discounted at the rate of return of 12% is equal to $270,000.
<h3>What do you mean by investment?</h3>Investment refers to the dedication of an asset to acquire growth in value over a duration of time. In finance, the motive of making an investment is to generate a return from the invested asset.
As per the information,
The vacancy rate is given is 5%
The occupancy rate is 100 - 5= 95%
Now, if it is assumed that the income is earned forever, then the present value of the income will be
PV of net income = A/r
A- 32400 , r - 12%
Hence, The amount that Harry should pay for the investment is the present value of the net income discounted at the rate of return of 12% is equal to $270,000.
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