3. Assume that you want to purchase a 10-year bond, with an annual coupon rate of 13%, a face value of $100 and semiannual inter
est payments. If the market interest rate is 9%, what is the maximum price you would pay for the bond
1 answer:
Answer:
$126.02
Explanation:
We use the present value formula to determine the maximum price pay for the bond which is shown in the attached spreadsheet.
Given that,
Future value = $100
Rate of interest = 9% ÷ 2 = 4.5%
NPER = 10 years × 2 = 20 years
PMT = $1,000 × 13% ÷ 2 = $6.5
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after solving this, the maximum price is $126.02
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