nal ExamChapters 7111416 Time Remaining 130 minutes Back to

nal Exam-Chapters 7-11,14,16 Time Remaining: 130 minutes Back to Assignment Deadline Today at 09.00 PM 7. You are considering a 10-year, S 1,000 par value bond. Its coupon rate is 9%, and interest is paid semiannually ir you require an annual interest rate of 10.0%, how much should you be willing to pay for the bond? O A. 1067.95 O B. 1020.60 C. 960.28 D. 937.69 Continue without saving Copyright Notices Terms of Use Privacy Notice Security Notice Accessibility 80 Fs

Solution

Price to pay is 937.69

	Particulars	Cash flow	Discount factor	Discounted cash flow
	Interest payments-Annuity (5%,20 periods)	45.0	12.4622	560.80
	Principle payments -Present value (5%,20 periods)	1,000	0.3769	376.89
A	Bond price			937.69
	Face value			1,000
	Premium/(Discount)			-62.31
	Interest amount:
	Face value	1,000
	Coupon/stated Rate of interest	9.00%
	Frequency of payment(once in)	6 months
B	Interest amount	1000*0.09*6/12=		45
	Present value calculation:
	yield to maturity/Effective rate	10.00%
	Effective interest per period(i)	0.1*6/12=		5.000%
	Number of periods:
Ref	Particulars	Amount
a	Number of interest payments in a year	2
b	Years to maturiy	10.0
c=a*b	Number of periods	20