Question

You have just purchased a 10-year, $1,000 par value bond. the coupon rate on this bond is 8 percent annually, with interest being paid each 6 months. if you expect to earn a 10 percent simple rate of return on this bond, how much did you pay for it?

Answer 1

V = I (PVIFA kd, n) + MV (PVIF kd, n)

I=(1000×0.08)/2=40

(PVIFA kd, n)=((1−(1+0.1÷2)^(−2×10))
÷(0.1÷2))

Mv =1000

(PVIF kd, n) =1÷(1+0.1÷2)^(2×10))

So the answer is
V=40×((1−(1+0.1÷2)^(−2×10))
÷(0.1÷2))+(1,000÷(1+0.1÷2)^(2×10))
=875.38...answer