Purchase Solution

# Bonds

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The following information applies to all three parts:

A bond with a face value of \$10,000 pays \$600 in interest every six months for 10 years and a lump sum of \$10,000 at the end of the tenth year. The current market requires 10% interest compounded semiannually.

1) What would an invester be willing to pay now for the \$10,000 at the end of the 10 tenth year?

\$1,486, \$3,769, \$3,855, or \$61,446

2) What would an invester be willing to pay for \$10,000 bond?

more than \$10,000, \$10,000, Less than \$10,000, or More information is needed to determine the amount

3) The \$600 semiannual interest payments?

have a present value of \$12,000, reflect the actual rate of interest received by the invester, are paid at the zero point, or are an example of an annuity - please advise of answer & show why - thanks!

##### Solution Preview

1) What would an investor be willing to pay now for the \$10,000 at the end of the 10 tenth year?
\$1,486, \$3,769, \$3,855, or \$61,446

By a financial calculator, we input:
FV = 10,000
Interest Rate = 10% / 2 = 5%
Number of periods = ...

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