Question

Assume that you wish to purchase a 18-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $31. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Answer 1

Solution:- Given in Question"-

Interest Amount = $31

Yield to Maturity per year = 10%

Yield to Maturity for semi annual = 10%/2 = 5%

Year = 18

Period in Semiannual year (n) = 18 * 2 = 36 semi annual year

To Calculate maximum price you should be willing to pay for the bond-

Price =

Price =

Price =

Price = $912.952 + $172.66

Price = $1,085.61

The maximum price you should be willing to pay for the bond is $1,085.61

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