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!

    Microhard has issued a bond with the following characteristics:
    Principal $1,000
    Time to maturity: 20 years
    Coupon rate: 8 percent, compounded semiannually
    Semiannual payments

    Calculate the price of this bond if the stated annual interest rate, compounded semiannually, is

    a. 8 percent
    b. 10 percent
    c. 6 percent

    © BrainMass Inc. brainmass.com June 3, 2020, 6:32 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/price-of-a-bond-64252

    Solution Preview

    Microhard has issued a bond with the following characteristics:
    Principal $1,000
    Time to maturity: 20 years
    Coupon rate: 8 percent, compounded semiannually
    Semiannual payments

    Calculate the price of this bond if the stated annual interest rate, compounded semiannually, is

    a. 8 percent
    b. 10 percent
    c. 6 percent

    a To calculate the price of the bond we need to calculate / read from tables the values of
    PVIF= Present Value Interest Factor
    PVIFA= Present Value Interest Factor for an Annuity
    Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

    PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
    PVIF( n, r%)= =1/(1+r%)^n

    Price of bond
    Coupon ...

    Solution Summary

    Calculates the price of a bond at different coupon rates.

    $2.19

    ADVERTISEMENT