An investor purchases a 1000 bond redeemable at par that pay

An investor purchases a 1000 bond redeemable at par that pays semiannual coupons at a nominal rate of 8% compounded semiannually and matures in ten years. The bond will yield an annual rate of 7% convertible semiannually to maturity. If the bond is called in five years, immediately after the 10th coupon payment, the minimum redemption value the investor needs to realize the same yield would be X. Determine X. Round your answer to two decimal places.

Solution

Face value (FV) $                                         1,000 Coupon rate 8.00% Number of compounding periods per year 2 Interest per period (PMT) $                                               40 Number of years to maturity 5 Number of compounding periods till maturity (NPER) 10 Market rate of return/Required rate of return 7.00% Market rate of return/Required rate of return per period (RATE) 3.50% Minimum value of bond PV(RATE,NPER,PMT,FV)*-1 Minimum value of bond $                                   1,041.58