Explore BrainMass

Explore BrainMass

    Price of a Bond

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

    You intend to purchase an 18-year, $1,000 face value bond that has coupon rate of 11% pays semiannually. If you expect to earn a 9.5 percent simpler rate of return on this bond, how much should you be willing to pay for this bond immediately before it makes its first coupon payment?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:56 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/price-of-a-bond-257226

    Solution Preview

    The answer is also there in the excel file attached:
    You intend to purchase an 18-year, $1,000 face value bond that has coupon rate of 11% pays semiannually.  If you expect to earn a 9.5 percent simpler rate of return on this bond, how much should you be willing to pay for this bond immediately before it makes its first coupon payment?

    Immediately before the first coupon payment is made there are 17 1/2 years to maturity.
    We first calculate the price of the bond with the first ...

    Solution Summary

    The price of a bond before it makes the first coupon payment has been calculated.

    $2.19

    ADVERTISEMENT