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Bond Payment and Nominal Rate of Return

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Assume that a 15-year, $1,000 face value bond pays interest of $37.50 every 3 months. If you require a nominal annual rate of return of 12 percent, with quarterly compounding, how much should you be willing to pay for this bond? (Hint: The PVIFA and PVIF for 3 percent,60 periods are 27.6748 and 0.1697, respectively.)

a. $ 821.92
b. $1,207.57
c. $ 986.43
d. $1,120.71
e. $1,358.24

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Solution Summary

This solution calculates how much payment is required for the bond by using the present value of annuity and present value of redemption value of a bond.

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