Question

Builtrite bonds have the following: 5 ½% coupon, 11 years until maturity, $1000 par and are currently selling at $1054. If you want to make an 5% return, what would you be willing to pay for the bond?

Answer 1

$1,041.53

Step-by-step explanation:

The price that a rational investor would pay for the bond yearning for 5% rate of return can be determined using excel pv function below:

=-pv(rate,nper,pmt,fv)

rate is the yield expected by the investor

nper is the number of annual coupons remaining i.e 11

pmt is the amount of annual coupon=face value*coupon rate=$1000*5.5%=$55

fv is the face value of $1000

=-pv(5%,11,55,1000)=$1,041.53