Purchased a 6year bond for 200000 The market rate of interes

Purchased a 6-year bond for $200,000. The market rate of interest is 8%. The coupon (stated) rate of interest is 6%. Interest is paid semiannually. Compute the present value of the bond.

Solution

Present value of the bond -

SAI * PVIFA [( R / 2 ),(n*2)] + MV * PVIF[( R / 2 ),(n*2)]

where SAI = semi annual interest ; R = market rate ; MV = maturity value ; n = number of years.

= $6,000 * PVIFA( 4% , 12) + $200,000 * PVIF( 4% , 12)

= $6,000 * (9.3851) + $200,000 *( 0.6246)

= $56,310.60 + $124,920

= $181,230.60