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Bonds

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

I believe the answer is - $3,855 - please advise of answer & show why - thanks!

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

I believe - more than $10,000 - please advise of answer & show why - thanks

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
I believe the answer is - $3,855 - please advise of answer & show why - thanks!

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

$2.19