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AlexFokin [52]
3 years ago
7

​A bond with a 12 percent quarterly coupon rate has a yield to maturity of 16 percent. The bond has a par value of $1,000 and ma

tures in 20 years. Based on this information, a fair price of this bond is $____.
Business
1 answer:
Mekhanik [1.2K]3 years ago
5 0

Answer:

fair value is $761

Explanation:

Given data

bond value = $1000

rater r = 12 %

rate R = 16%

time = 20 year

to find out

a fair price

solution

we know compounding period in year is = 4

so time 20 x 4 = 80  

fair Price = \sum_{k=1}^{k=80} [(Quarterly Coupon) / (1 + R/400)^t] +bond value / (1 + R /400)^t

here

Quarterly Coupon = 12 × 1000/400 = 30

so

fair Price = \sum_{k=1}^{k=80} [(30) / (1 + 16/400)^k] + 1000 / (1+16/400)^80

solve it we get

fair value is $761

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