Respuesta :
Answer:
$828.36
Explanation:
As for the information provided,
The value = $1,000
Life = 20 years, since interest is semi annual, effective period = 20 [tex]\times[/tex] [tex]\frac{12}{6}[/tex] = 40 periods.
Semi annual interest = $40
Annual interest = 10%, effective interest rate = 5%
Future Value Interest rate = $40 [tex]\times (\frac{1}{(1+0.05)^1} +\frac{1}{(1+0.05)^2} +\frac{1}{(1+0.05)^3} +\frac{1}{(1+0.05)^4} +\frac{1}{(1+0.05)^5} +\frac{1}{(1+0.05)^6} +\frac{1}{(1+0.05)^7} +.................. + \frac{1}{(1+0.05)^4^0} )[/tex]
= $40 [tex]\times[/tex] 17.159 = $686.36
Future Value of Principal = $1,000 [tex]\times \frac{1}{(1 + 0.05)^4^0}[/tex]
= $1,000 [tex]\times[/tex] 0.142 = $142
Thus, current price of bond = $686.36 + $142 = $828.36
The maximum price you should be willing to pay for the bond should be $828
Calculation of maximum price:
Since The time period = 20 × 2 = 40
Future value = $1,000
PMT = $40
NPER = 10% ÷2
The below formula should be used
=-PV(RATE,NPER,PMT,PV,FV,TYPE).
After applying the above formula, the maximum price should be $828.
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