Question

Ms. Jimenez is considering purchasing a bonus (bono)(bond) that has a face(nominal) value of $ 5,000. The bonus(bono)(bond)
pays 4% interest per year and premium(prima) payments are semi-annual.

How much is the maximum he should be
willing to pay for the bonus(bono)(bond) if you want to pay at least 10% compounded semi-annually on your investments.

Show the flow chart of this investment alternative from the buyer's perspective (Ms. Jimenez).

Determine the maximum price that the investor should be willing to pay.

Show the cash flow diagram and the equation in functional notation to solve this problem.

Answer 1

SOLUTION:-

Maximum Price that can be paid is PV of cash flows from it.

Period	CF	PVF @5%	Disc CF
1	$ 100.00	0.9524	$ 95.24
2	$ 100.00	0.9070	$ 90.70
3	$ 100.00	0.8638	$ 86.38
4	$ 100.00	0.8227	$ 82.27
5	$ 100.00	0.7835	$ 78.35
6	$ 100.00	0.7462	$ 74.62
7	$ 100.00	0.7107	$ 71.07
8	$ 100.00	0.6768	$ 67.68
9	$ 100.00	0.6446	$ 64.46
10	$ 100.00	0.6139	$ 61.39
11	$ 100.00	0.5847	$ 58.47
12	$ 100.00	0.5568	$ 55.68
13	$ 100.00	0.5303	$ 53.03
14	$ 100.00	0.5051	$ 50.51
15	$ 100.00	0.4810	$ 48.10
16	$ 100.00	0.4581	$ 45.81
17	$ 100.00	0.4363	$ 43.63
18	$ 100.00	0.4155	$ 41.55
19	$ 100.00	0.3957	$ 39.57
20	$ 100.00	0.3769	$ 37.69
20	$ 5,000.00	0.3769	$ 1,884.45
Bond Price	$ 3,130.67

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