Calculating the Maximum Price to Pay for a Bond
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Assume that you wish to purchase a 10-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $50. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
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Solution Summary
The solution explains how to calculate the price to pay for a bond given it's expected returns.
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The price would be the present value of interest and principal. The semi annual interest is $50, principal amount is $1,000, periods to maturity are 10X2=20 ...
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