Question

A $3100 12% ten-year bond has semiannual coupons and is sold to yield 5% convertible semi-annually. The discount on the bond is $83.28. Find the redemption amount.

Round your answer to the nearest cent. Answer in units of dollars. Your answer must be within ± 0.0%

Answer 1

Bond par value		3100
Discount on bond		83.28
Bond price = 3100-83.28 =		3016.72
Coupon amount = 3100*12%/2 =		186
Yield semi annual(i) = 5%/2 = 2.5% or 0.025
Years = 10
Time (n) = 10*2 = 20 semiannual periods
Bond price formula = (Interest amount * (1- (1/(1+i)^n)) / i ) + Redemption amount / (1 + i) ^n
3016.72 = (186 * (1-(1/(1+0.025)^20)) / 0.025 ) + Redemption amount/(1+0.025)^20
3016.72 =	2899.584185	Redemption amount *	0.6102709429
Redemption amount * 0.6102709 =			117.1358149
Redemption amount =		191.940672
So, Redemption amount is $191.94.