Question

Summit Investment Consulting is considering purchasing $6,000,000 in face value of Gianna Enterprises' 12-year, 3.75% bonds...

Summit Investment Consulting is considering purchasing $6,000,000 in face value of Gianna Enterprises' 12-year, 3.75% bonds currently offered at a yield to maturity of 3.45%. The cost of the bonds is closest to:

A.

$6,290,574.
B.

$6,175,649.
C.

$5,828,592.
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Homework Answers

Answer #1

We can use the bond price formula to find the cost.

Where,
C = Periodic coupon payment,
P = Face value
r = Yield to maturity
n = Years to maturity

C = $6,000,000 * 3.75% =  $225,000

Therefore,

From the given options we can see that the cost of the bonds is closest to option B.$6,175,649

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