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A 30-year 15% bond with semi-annual coupons is purchased for 110% of par to yield a...

A 30-year 15% bond with semi-annual coupons is purchased for 110% of par to yield a nominal annual rate of 13.66% convertible semi-annually. The redemption value is what percent of the par value? 112.4 116.1 119.8 123.5 127.2

Math   Statistics-And-Probability   
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Answer #1

The Present value of Coupons + Present value of Redemption payment at the given yield should be equal to 110 which is the value at which the bond is bought. Therefore, we have here:

Applying the sum of a geometric distribution sum formula, we get here:

Now the PV of redemption must be computed here as:

Therefore 119.8 is the required redemption value here.

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