Assume that you wish to purchase a 17-year bond that has a maturity value of $1,000 and makes semiannual interest payments of $47. 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?
Solution:- Given in Question-
Interest Amount = $47
Yield to Maturity per year = 10%
Yield to Maturity for semi annual = 10%/2 = 5%
Year = 17
Period in Semiannual year (n) = 17 * 2 = 34 semi annual year
To Calculate maximum price you should be willing to pay for the bond-
Price =
Price =
Price =
Price = $761.066 + $190.35
Price = $951.416
The maximum price you should be willing to pay for the bond is $951.416
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