Explore BrainMass

Explore BrainMass

    Bond Value

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The Southeast Investment Fund buys 70 bonds of the Hilary Bakery Corporation through its broker. The bonds pay 9% annual interest. The yield to maturity (market rate of interest) is 12%. The bonds have a 25-year maturity. Using an assumption of semiannual interest payments:

    a. Compute the price of a bond (refer to "semiannual interest and bond prices" )

    b. Compute the total value of the 70 bonds.

    © BrainMass Inc. brainmass.com June 3, 2020, 6:07 pm ad1c9bdddf

    Solution Preview

    The price of the bond is the discounted sum of the future interest payments and the repayment of the principal amount. In this case, there are 25 years to maturity and the interest is semiannual. There would be 50 interest payments and 1 principal repayment. The ...

    Solution Summary

    This solution provides a detailed step by step explanation of how to determine the value of the given bond.