$1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If your nominal annual required rate of ret

Question

3 years ago

14

urn is 12 percent with quarterly compounding, how much should you be willing to pay for this bond

1 answer:

Georgia [21] · Answer 1 · 2022-02-28T19:24:04+03:00

Answer:

$1,115.58

Explanation:

Calculation to determine how much should you be willing to pay for this bond

Using this formula

Bond Price= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Where,

Par value= $1,000

Cupon= $35

Time= 10*4= 40 quarters

Rate= 0.12/4= 0.03

Let plug in the formula

Bond Price= 35*{[1 - (1.03^-40)] / 0.03} + [1,000/(1.03^40)]

Bond Price= 809.02 + 306.56

Bond Price= $1,115.58

Therefore how much should you be willing to pay for this bond is $1,115.58