You have just purchased a 10-year, $1,000 par value bond, The coupon rate is 8% annually, with interest being paid each 6 months.
If you expect to earn a 10% nominal rate of return on this bond, how much did you pay for it
Answer and Explanation:
The correct choice is Option C.
Bond Price is given as:
M = Maturity Amount = $1,000.00
n = Number of periods to maturity = 10 x 2 = 20
C = Periodic coupon = 1000 x 8% x 1/2 = $40.00
i = Periodic yield = 10 / 2 = 5% = 0.05
Bond Price = $875.38
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from Finance 301: Corporate FinanceChapter 7 / Lesson 6
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