Question

Matt purchases a 20-year par value bond with 8% semiannual coupons at a price of 1772.25. The bond can be called at par value X on any coupon date starting at the end of year 15. The price guarantees that Matt will receive a nominal semiannual yield of at least 6%. Bert purchases a 20-year par value bond identical to the one purchased by Matt, except that it is not callable. Assuming a nominal semiannual yield of 6%, the cost of the bond purchased by Bert is P. Calculate P.

Answer 1

(Here X refers to P: the cost of bond purchasedby Bert)