You are given a bond interest of 6% that was given on January 1, 2016, with a face value of $600,000. Also, the market yield for bonds of similar risk, that <span>the market yield for bonds of similar risk and maturity was 7% and </span>the interest is paid semiannually on June 30 and December 31. You are to find the bond value on January 1, 2016. In here, because the yield of the market is above 6%, the bonds will have a discount for bonds less than $600,000.
Cash interest
= 0.06 * $600,000 * 6/12 (because it is done semiannually)
= $18,000
7%/2 = 3.5%
PV of interest at 3.5%
= $18,000 * 6.87396
= $123,731
PV of face at 3.5%
= $600,000 * 0.75941
= $455,646
Value of bond
= PV on interest + PV of face
= $123,731 + $455,646
= $579,377
The absolute value of a number is the distance the number is from zero on the number line. Only one number is 0 units from 0. It is zero. For all other distances, there are always two numbers. Example: The two numbers a distance of 1 unit from zero are -1 and 1. Example: The two numbers a distance of 4.5 units from zero are -4.5 and 4.5.
In your case, the two numbers a distance of 1.75 units from zero are -1.75 and 1.75. Find -1.75 between -1.5 and -2 and place a dot there. Find 1.75 between 1.5 and 2 and place a dot there.