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Your sibling is having their first child. You want to get a really good gift and so you decide to buy the new baby a Deep Discount Bond. The deep discount bond has a face value of $1,000 and a nominal
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Your sibling is having their first child. You want to get a really good gift and so you decide to buy the new baby a Deep Discount Bond. The deep discount bond has a face value of $1,000 and a nominal interest rate of 8% compounded semiannually, with a life of 15 years. A) What is the purchase price for this Strip described above

User Medri
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4 votes

Answer:

$308.32

Step-by-step explanation:

since the bond doesn't pay any coupons, its market value is equal to the present value of its face value:

market value = $1,000 / (1 + 4%)³⁰ = $1,000 / 3.243398 = $308.32

when a bond pays coupons, in order to determine the present value of the bond you would need to include the present value of the coupon payments (annuity).

User Phantom Lord
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