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Using the same information as above, except that your required rate of return is 6%, what...

Using the same information as above, except that your required rate of return is 6%, what is the maximum price you would be willing to pay for this investment? Assume the bond pays interest semiannually.

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Previous Ques- You are considering purchasing a bond at the end of this year. The bond’s interest payments ($105) are made annually and the bond matures in 20 years. If your required rate of return is 14%, what is the maximum price you would be willing to pay for this investment?

Current Ques- Using the same information as above, except that your required rate of return is 6%, what is the maximum price you would be willing to pay for this investment? Assume the bond pays interest semiannually.

Note- As Solved your Previous Question, answering current question based on the changes

Face/Par Value of bond = $1000

Semi-Annual Coupon Payment= $105/2 = $52.5

No of Coupon Payments(n) = No of years to maturity*2 = 20 years*2

= 40

Required rate of return(YTM) = 6%

Semi-annual YTM = 6%/2 = 3%

Calculating the Market price of Bond:-

Price = $1213.53 + $306.56

Price = $1520.08

So, the maximum price you would be willing to pay for this investment is $1520.08

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