A ?$23,000?, 8

Economics Aug 10, 2020

A ?$23,000?, 8.9?% bond redeemable at par is purchased 8 years before maturity to yield 5.4% compounded semi-annually. If the bond interest is payable semi-annually, what is the purchase price of the? bond?

Expert Solution

We can calculate the purchase price of the bond by using the following formula in excel:-

=-pv(rate,nper,pmt,fv)

Here,

PV = Purchase price of the bond

Rate = 5.4%/2 = 2.7% (semiannual)

Nper = 8*2 = 16 periods (semiannual)

Pmt = Coupon payment = $23,000*8.9%/2 = $1,023.50

FV = $23,000

Substituting the values in formula:

= -pv(2.7%,16,1023.50,23000)

= $28,173.77

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