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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Question
How much would you pay for a $30,000, 4 year, 5% bond if I want a return of 7% { assume bond pays intrest every 6 months
Expert Solution
Step 1: Calculating the present value of the bond
Given:
Bond face value = $30,000
Coupon = 5%
Semi annual coupon rate =2.5%
So, semi annual coupon payment = 0.025*30000 = 750
Time = 4 years
Semi annual period = 8
Return = 7%
Semi annual return =3.5%
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