You have just bought a security which pays $500 every six months. The security lasts for ten years. Another security of equal risk also has a maturity of ten years, and pays 10 percent compounded monthly (that is, the nominal rate is 10 percent). What should be the price of the security that you just purchased?
e. none of the above
What you would be willing pay is the present value of annuity. The present value of annuity can be calculated ...
The solution explains how to calculate the price of the security.