Question

An irwestor Who owns a bond With a 7.8% coupon rate that pays unterest serniannually and matures in two years is considering its sale. If the required rate of refurn on the 97%, the price of the bond per 100 of par value is? (round your answer to two decimal places and do not use a $ sign in your answer) ___.

Answer 1

To calculate the price of the bond, use the present value formula with the coupon payment, required rate of return, and maturity period.

Step-by-step explanation:

In this question, an investor owns a bond with a 7.8% coupon rate that pays interest semiannually and matures in two years. The required rate of return is 9%. To calculate the price of the bond, we can use the present value formula:

Price of Bond = (Coupon Payment / (1 + r) + Coupon Payment / (1 + r)^2 + ... + Coupon Payment / (1 + r)^n) + (Par Value / (1 + r)^n)

In this case, the coupon payment is $3.90 (7.8% of $100), the required rate of return is 9%, and the bond matures in two years. Plugging these values into the formula, we can calculate the price of the bond to be approximately $98.04.