The fair value of a bond with a par value of 1000 BD and a Coupon payment of 100 BD and a maturity period of 20 years and the interest is paid twice a year, the market interest rate is 10 percent is Select one: a

Finance Jan 22, 2021

The fair value of a bond with a par value of 1000 BD and a Coupon payment of 100 BD and a maturity period of 20 years and the interest is paid twice a year, the market interest rate is 10 percent is

Select one:

a. BHD 1,135.5

b. BHD 1,000

c. BHD 2,194.3

d. BHD 1,197.65

Expert Solution

Coupon payament is 100 and par value is 1000 which means the coupon rate is (100/1000) = 10%.

Since coupon rate is equal to market interest rate of 10%, The fair value of bond is at par value.

The fair value of bond = BHD 1,000

Coupon payment per period = 100/2 =50

Total period = 20*2 = 40

Fair value of bond = 50*((1-(1/(1+5%)^40))/5%) + 1000/(1+5%)^40

Fair value of bond = 1000

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