Answer:
The worth of the bond is $1068.44
Explanation:
Solution
Given that
Supposed that the face of the bond is $1000
Thus
The semiannual coupon payment = 1000*8%*6/12
= 40 (semiannual period in a year comprising of 6 months each)
Then
Semiannual periods = 6 years *2
=12
The semiannual yield = 6.6*6/12
= 3.3%
So,
The present value of bond = (PVA3.3%,12*semiannual coupon payment) + (PVF3.3%,12*Face value)
=(9.77808*40) + (.67732*1000)
=391.12+ 677.32
=$1068.44
The worth of the bond is $1068.44
nnote: Find present value factor using the formula 1/(1+i)^n
(Where i = 3.3%, n= 12 ) or using financial calculator by putting i = 3.3%,n=12 and FV= 1
Also, Find present value annuity factor using the formula [1/(1+i)^1 +1/(1+i)^2 +......+(1+i)^11+1/(1+i)^12 ] or using financial calculator where i = 3.3%,n= 12 and PMT =1
