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Bond price: QBE Insurance Group Ltd has outstanding bonds with a face value of $1000 that...

Bond price: QBE Insurance Group Ltd has outstanding bonds with a face value of $1000 that will mature in 6 years and pay an 8 percent coupon, interest being paid semiannually. If you paid $1036.65 today and your required rate of return was 6.6 percent, did you pay the right price for the bond?

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Answer #1
Period Cash Flow Discounting Factor
[1/(1.033^year)]		 PV of Cash Flows
(cash flows*discounting factor)
1 40 0.968054211 38.72216844
2 40 0.937128956 37.48515822
3 40 0.907191632 36.28766527
4 40 0.878210679 35.12842717
5 40 0.850155546 34.00622185
6 40 0.822996657 32.91986626
7 40 0.796705379 31.86821516
8 40 0.771253997 30.85015989
9 40 0.74661568 29.86462719
10 40 0.722764453 28.91057811
11 40 0.699675172 27.98700688
12 40 0.677323497 27.09293987
12 1000 0.677323497 677.3234967
Price of the Bond =
Sum of PVs		 1068.446531

Theoretical Price > Actual Price Paid.

Therefore, We paid LESS than the Theoretical Price.

Therefore, YES, We paid the Right Price.

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