Bonds XVIYou are considering a 10-year

QUESTION

You are considering a 10-year, $1,000 par value bond. Its coupon rate is 9%, and interest is paid semiannually. If you require an effective annual interest rate(not a nominal rate) of 8.16%, how much should you be willing to pay for a bond?
Calculating the present value of teh bond using excel sheet: Step1: Go to excel and click “insert” to insert the function. Step2: Select the ” PV” function as we are finding the current bond price in this case. Step3: Enter the values as Rate = 8.16%/2; Nper = 10*2; PMT = -45; FV = -1000 Step4: Click “Ok” to

get the desired value. The value comes to “$1056.6” Therefore, an amount of $1056.6 will be paid for the bond. Payment is calculated semi-annuallly 9%/2 = 4.5% on face value of the bond = 0.045($1,000) = $45

ANSWER:

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