Question

Builtrite bonds have the following: 6 ½% coupon, 16 years until maturity, $1000 par and are currently selling at $1010. If you want to make an 7% return, what would you be willing to pay for the bond?

$953 |
||

$944 |
||

$935 |
||

$962 |

Answer #1

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =16 |

Bond Price =∑ [(6.5*1000/100)/(1 + 7/100)^k] + 1000/(1 + 7/100)^16 |

k=1 |

Bond Price = 952.77 = 953 |

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