A $1,000 par value bond has 7.5% semiannual coupons and matures on July 1, 2017 at $1050. Find the actual feeling price of this bond on November 15, 2013 and the price that would be quoted in a financial newspaper on the same date, based on a nominal annual yield rate of 5.8% compounded semiannually. Use the actual number of days to compare the accrued interest.
Solution:- The redemption value is $1,050
Interest is paid semi annual = 1,000 * 7.5% * 6 /12 = $37.5 for the six months
interest can be earned for 7 terms and when it is discounted using the annaul yeild rate, it amount to $235 approx
Present value of semiannual coupouns = $75 / 0.058 (1 - 1 / (1.029)^7 = $235
the redemption value is $ 1050 , when discounted using the annual yeild rate amounts to $860 approx
The value of Bond $1,095 ($860 + $235)
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