Bill Mitselfik has purchased a bond that was issued by Acme Chemical. This bond has a face value of $1,000 and pays a dividend o

Question

3 years ago

13

Bill Mitselfik has purchased a bond that was issued by Acme Chemical. This bond has a face value of $1,000 and pays a dividend o

f 8% per year, compounded semi-annually. Bill bought the bond three years ago at face value and there are seven years remaining until the bond matures. Bill wishes to sell it now for a price that will result in Bill earning an annual yield of 10% compounded semi-annually. What price does Bill need to sell the bond for to earn his desired return

Business

1 answer:

kramer · Answer 1 · 2022-05-17T09:15:01+03:00

Answer:

$1,068.02

Explanation:

For computing the selling price of the bond we need to use the Future value formula or function i.e to be shown in the attachment below:

Given that,

Present value = $1,000

Rate of interest = 10% ÷ 2 = 5%

NPER = 3 years × 2 = 6 years

PMT = $1,000 × 8% ÷ 2 = $40

The formula is shown below:

= FV(Rate;NPER;PMT;-PV;type)

The present value comes in negative

So, after applying the above formula, the selling price of the bond is $1,068.02