Chapter 13, Problem 1PA

Summary Introduction

To discuss:

Payment for purchase of bond and money that one will receive at maturity.

Introduction:

Quoted price refer to the price at which buying and selling of stock or any other security takes place.

Explanation of Solution

Given,

Rate is 88.375%.

Par value is $1,000.

Formula to calculate purchase price,

$\text{Purchase price}=\text{Rate}\times \text{Par value}$

Substitute, 88.375% for rate and $1,000 for par value in the above equation.

$\begin{array}{c}\text{Purchase price}=\frac{88.375}{100}\times \$1,000\\ =\$883.75\end{array}$

One should pay $883.75 to purchase the bond.

One will receive$1,000 at maturity.

Conclusion

Hence, one should pay $883.75 to purchase the bond and will receive $1,000 at maturity.