Question

A PREPA bond matures in 15 years and pays $ 80 semi-annually and $ 1,000 when due. The prevailing market rate is 10% per year. What is the present value of the bond?

a)$1,460.84

b)$1,010.84

c) $996.96

d) $1,000.00

Answer 1

Given,

Par value = $1000

Maturity = 15 years

Semi annual coupon payment (C) = $80

Market interest rate = 10% or 0.10

Solution :-

Semi annual maturity (n) = 15 years x 2 = 30

Semi annual market interest rate (r) = 0.10/2 = 0.05