Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The bond has a f
ace value of $1,000, and it makes semiannual interest payments. If you require an 8.4% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Group of answer choices $1,133.34 $1,105.69 $1,190.71 $1,161.67 $1,220.48
2 answers:
Answer:
$1,105.69
Explanation:
For this question we use the Present value formula that is shown on the attachment. Kindly find it below:
Given that,
Future value = $1,000
Rate of interest = 8.4% ÷ 2 = 4.2%
NPER = 20 years × 2 = 40 years
PMT = $1,000 × 9.5% ÷ 2 = $47.50
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after solving this, the maximum price pay for the bond is $1,105.69
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