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A 10-year bond with a face value of $1000 earns interest at 9.7% convertible semiannually. If...

A 10-year bond with a face value of $1000 earns interest at 9.7% convertible semiannually. If the bond sells for $1057.07 to yield an investor 7.5% convertible semiannually, what is the redemption value?

C = $

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Answer #1

Semiannual interest = 1000*.097 *6/12 = 48.50

semiannual months = 10 *2 = 20

semiannual yield = 7.5 *6/12 = 3.75%

Price = [PVA 3.75%,20*Interest ] +[PVF 3.75%,20*Redemption value]

1057.07 =[13.89620*48.50] + [.47889*RV]

1057.07 = 673.97+ .47889 RV

   Redemption value = [1057.07-673.97]/.47889

               = 383.10/.47889

               = $ 799.97     [rounded to 800]

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