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    You are contemplating the purchase of a 20-year bond that pays $50 in interest each six months.

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    You are contemplating the purchase of a 20-year bond that pays $50 in interest each six months. You plan to hold this bond for only 10 years, at which time you will sell it in the marketplace. You require a 12 percent annual return, but you believe the market will require only an 8 percent return when you sell the bond 10 years hence. Assuming you are a rational investor, how much should you be willing to pay for the bond today?

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    Solution Preview

    This is a question of present value calculation
    The future value is ...

    Solution Summary

    You will find the answer to this puzzling question inside.

    $2.19

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