The City of State College plans to issue bonds with a par value of $12,000 that will issue 6% quarterly payments for 3 years. If a purchaser wants earn 7% per quarter over the lifetime of the bond, how much would the purchaser be willing to pay for the bond?
The City of State College plans to issue bonds with a par value of $12,000 that will issue 6% quarterly payments for 3 years. If a purchaser wants earn 7% per quarter over the lifetime of the bond, how much would the purchaser be willing to pay for the bond?
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
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The City of State College plans to issue bonds with a par value of $12,000 that will issue 6% quarterly payments for 3 years. If a purchaser wants earn 7% per quarter over the lifetime of the bond, how much would the purchaser be willing to pay for the bond?
Expert Solution
Step 1: Introduction:
The bonds are issued to raise funds for a fixed period by an issuer and the issuer promises to pay back the principal at the time of maturity. If the bond is a zero coupon bond then the bonds are usually traded at a discounted price.
If the bond is coupon paying bond then the regular interest payments will be made (quarterly, annually, semi-annually, monthly) depending upon the terms decided.
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