A couple purchased a bond for $950.00 three years ago. The bond pays 7.625% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 12.00% APR on bonds of similar risk. What is the current price of the bond? Submit Answer format: Currency: Round to: 2 decimal places. Hide Hint A couple purchased a bond for $950.00 three years ago. The bond pays 6% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 9% APR on bonds of similar risk.
A couple purchased a bond for $950.00 three years ago. The bond pays 7.625% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 12.00% APR on bonds of similar risk. What is the current price of the bond? Submit Answer format: Currency: Round to: 2 decimal places. Hide Hint A couple purchased a bond for $950.00 three years ago. The bond pays 6% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 9% APR on bonds of similar risk.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:#2
A couple purchased a bond for $950.00 three years ago. The bond pays 7.625% APR with
semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until
maturity, and investors seek a return of 12.00% APR on bonds of similar risk.
What is the current price of the bond?
Submit
Answer format: Currency: Round to: 2 decimal places.
Hide Hint
A couple purchased a bond for $950.00 three years ago. The bond pays 6% APR with semi-annual coupons with a
face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 9%
APR on bonds of similar risk.
What is the current price of the bond?
SOLUTION:
Bond Price = PV of Bond Cash Flows
Po=
=
CPN
y'
-x1-
+
1+
Face Value
(1+ y')N'
APR%x Face Value
6%x$1,000
Coupon CPN =
=
= $30 per 6 months
m
2
y' =
y
=
m
9%
2
= 4.50% per 6 months
N' =
= Nxm = 10x2 = 20 coupons remaining
Po
$30
0.045
x(1-(1,045)20) +
$1,000
(1.045) 20
=
$804.88
KEY POINT: For pricing the bond today, the price you paid three years ago is IRRELEVANT! All that matters is the
time remaining on the bond.
USING FINANCIAL CALCULATOR:
Atte
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