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An investor bought a 15-year bond with par value of 100000 and 8 percent semiannual coupons....

An investor bought a 15-year bond with par value of 100000 and 8 percent semiannual coupons. The bond is callable at par on any coupon date beginning with the 24th coupon.

Find the highest price paid that will yield a rate not less than i (2) = 10%.

  1. 85,800

  2. 85,400

  3. 85,000

  4. 84,600

  5. 84,200

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Answer #1
                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =15x2
Bond Price =∑ [(8*100000/200)/(1 + 10/200)^k]     +   100000/(1 + 10/200)^15x2
                   k=1
Bond Price = 84627.55 = 84600
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