Question

You want to buy a 11-year bond with a maturity value of $12,000, and you wish to get a return of 7.25% annually. How much will you pay? (Round your answer to the nearest cent.)

Answer 1

Answer:The price of a bond can be calculated using the formula:

Price = Maturity Value / (1 + r)^n

Where:

Maturity Value = $12,000

r = the annual interest rate as a decimal (7.25% / 100 = 0.0725)

n = the number of years to maturity (11 years)

So the price of the bond is:

Price = $12,000 / (1 + 0.0725)^11

By solving this equation we get the price of bond is $7,065.87 approximately.

Note: The bond price is the amount you pay to buy the bond and receive the maturity value at the end of the bond term.

Explanation: