Question

Three years ago, Tristan bought a 30-year, 5.45%, $1,000 bond. The bond pays interest semiannually. He wants to sell the bond after receiving the sixth semiannual dividend.

a.) Similar bonds are being issued that pay 4%. What is Tristan’s bond worth today? (Round your answer to the nearest cent.)

b.) Similar bonds are being issued that pay 6%. What is Tristan’s bond worth today? (Round your answer to the nearest cent.)

Answer 1

Each semiannual payment is (1/2)*.0545*$1000 = $27.25. There are 2*30 = 60 such payments in 30 years. After 6 payments, there will be 54 left.

a) The value of Tristan's bond is $1238.08

b) The value of Tristan's bond is $926.91