Suppose you have $850 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. Ho
1 answer:
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Answer:
$828.36
Explanation:
As for the information provided,
The value = $1,000
Life = 20 years, since interest is semi annual, effective period = 20
= 40 periods.
Semi annual interest = $40
Annual interest = 10%, effective interest rate = 5%
Future Value Interest rate = $40
= $40 17.159 = $686.36
Future Value of Principal = $1,000
= $1,000 0.142 = $142
Thus, current price of bond = $686.36 + $142 = $828.36