Question

A $1,000 par value 16-year bond with m coupons per annum has a price of $910.63. If the total write-up value in the book value of the bond in the first 8 years is $54 and the yield rate of the bond is 5.0945% effective per annum, find the redemption value of the bond.

Answer 1

Answer :

Initially determine the coupon value of the bond:

Regard: This is considered that a write-up amount of $54 is p/annum for individual of the 8 years.

Coupon value= Write up amount x 100

Face Value  

= 54 x 100

1000

= 5.4% p.a.

Estimation of redemption price:

Assign retrieval price to be X.

P0 = Coupon value (PVAF 5.0945%, 16) + Redemption price(PVIF 5.0945%, 16)

910.63 = 54 (10.7652) + X (.4516)

910.63 = 581.32 + .4516X

329.31 = .4516X

X = $729.21

hence ,redemption value is $729.21.