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____ [38]
3 years ago
6

Determine the market price of a $485,000, 10-year, 8% (pays interest semiannually) bond issue sold to yield an effective rate of

10%.
Business
1 answer:
SpyIntel [72]3 years ago
5 0

Answer:

Bond Price​= $424,588.28

Explanation:

Giving the following information:

Face value= $485,000

Number of periods= 10*2= 20

Interest rate= 0.08/2= 0.04

YTM= 0.1/2= 0.05

T<u>o calculate the price of the bond, we need to use the following formula:</u>

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

Bond Price​= 19,400*{[1 - (1.05^-20)] / 0.05} + [485,000/1.05^20)

Bond Price​= 241,766.88 + 182,791.4

Bond Price​= $424,588.28

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