Question

Find the price a purchaser should be willing to pay for the given bond. Assume that the coupon interest is paid twice a year. $18000 bond with coupon rate 4% that matures in 5 years current interest rate is 3%. The purchaser should be willing to pay?

Answer #1

**Note** : Price a purchaser should be
willing to pay for the bond = Present value for the bond

**Present value for the bond** = Semi annual
interest * PVIFA _{( R / 2 , [n *2] )} + Maturity value*
PVIFA _{( R / 2 , [n *2] )}

where , r = current interest rate , n = terms of bounds

= ( $18000 * 4% * 6 / 12) * PVIFA _{(1.5 % , 10 years )}
+ $18000 * PVIFA_{(1.5 % , 10 years )}

= $360 * 9.222 + $18,000 * 0.862= $3,320 + $15,516 =
**$18,836**

Thus, the price a purchaser should be willing to pay for the
given bond is **$18,836**

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Suppose you are given the following information about the
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price
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2-year zero, face value $1,000
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