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Inga [223]
3 years ago
5

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required r

ate of return is 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? (Round the answer to two decimal places.)
a) $1,115.57
b) $825.49
c) $941.36
d) $1,391.00
Business
1 answer:
Ludmilka [50]3 years ago
6 0

Answer:

Bond Price​= $1,115.58

Explanation:

Giving the following information:

Par value= $1,000

Cupon= $35

Time= 10*4= 40 quarters

Rate= 0.12/4= 0.03

<u>To 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​= 35*{[1 - (1.03^-40)] / 0.03} + [1,000/(1.03^40)[

Bond Price​= 809.02 + 306.56

Bond Price​= $1,115.58

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