ia is thinking about investing money into a bond to diversify her investments. Co bonds at a face value of $27500 and a 14.0% nominal interest rate paid semiann pital for an upcoming factory expansion. The face value of the bond is $27500. T ar bond. As the bond was issued, the current nominal interest rate in the market i TAIL ingle

ia is thinking about investing money into a bond to diversify her investments. Co bonds at a face value of $27500 and a 14.0% nominal interest rate paid semiann pital for an upcoming factory expansion. The face value of the bond is $27500. T ar bond. As the bond was issued, the current nominal interest rate in the market i TAIL ingle

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Silvia is thinking about investing money into a bond to diversify her investments. Company X issued
12 bonds at a face value of $27500 and a 14.0% nominal interest rate paid semiannually to raise
capital for an upcoming factory expansion. The face value of the bond is $27500. The bond is a 20
year bond. As the bond was issued, the current nominal interest rate in the market is 7.5%
compounded monthly. What is the maximum price Silvia should be pay for a single bond from
company X?
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