Question

Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 8.4% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Group of answer choices $1,133.34 $1,105.69 $1,190.71 $1,161.67 $1,220.48

Answer 1

29.23

Step-by-step explanation:

because it noncallable

Answer 2

$1,105.69

Step-by-step explanation:

For this question we use the Present value formula that is shown on the attachment. Kindly find it below:

Given that,

Future value = $1,000

Rate of interest = 8.4% ÷ 2 = 4.2%

NPER = 20 years × 2 = 40 years

PMT = $1,000 × 9.5% ÷ 2 = $47.50

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the maximum price pay for the bond is $1,105.69