bond matures in 14 years

Finance Dec 25, 2020

bond matures in 14 years. Assuming the coupon is paid semiannually and the par value is $1,000, what is the value of this bond to an investor requiring a 15% rate of return? $828.27 $872.66 5411.98 $826.40

Expert Solution

Semi annual rate = 15% / 2 = 7.5%

Number of periods = 14 * 2 = 28

Semi annual coupon = [(12 / 100) * 1000] / 2 = 60

Value of bond = Coupon * [1 - 1 / (1 + rate)^periods] / rate + Face value / (1 + rate)^periods

Value of bond = 60 * [1 - 1 / (1 + 0.075)^28] / 0.075 + 1000 / (1 + 0.075)^28

Value of bond = 60 * [1 - 0.132] / 0.075 + 131.99668

Value of bond = 60 * 11.57338 + 131.99668

Value of bond = $826.40

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