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A $100,000, 8.75% bond with interest payable annually is redeemable at 103 in four years. What...

A $100,000, 8.75% bond with interest payable annually is redeemable at 103 in four years. What is the purchase price to yield 7% compounded quarterly? Select one: a. $107,584.62 b. $107,548.62 c. $105,748.62 d. $106,548.82 e. $108,746.82

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Answer #1

No of annual coupon payments pending (N) = 4

Maturity value or Future Value (FV)= 100,000 x 103 /100 = 103,000

Annual Coupon payment on bond (PMT) = $100,000 x 8.75% = $ 8,750

Yield to maturity on bond (Y) = (1 + 7%/4)4 - 1 = 7.1859% p.a.

Price of bond (PV) = ??

Using financial calculator or PV function in excel,

Price of bond (PV) = $107,548.62

Therefore, option b is correct.

Thumbs up please if satisfied. Thanks :)

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