Respuesta :
Answer:
The highest price you would be willing to pay is $11,573.53
Explanation:
Annual Semiannual
Face value 10000 10000
Yield to Maturity or required rate of return 5.800% 2.90%
Maturity Period 25 50
Coupon Rate 7.00% 3.50%
Coupon paid $700.00 $350.00
PV of coupon payments = $9,178.94
PV of Maturity Value = $2,394.59
Price of Bond = $11,573.53
Therefore, The highest price you would be willing to pay is $11,573.53
Answer: The highest price to pay is $9,145.87
Explanation:
P = ∑ C/(1 + Y )∧t. + F/ ( 1 + Y)∧T
Where C = The periodic coupon payment
Y = The yield to maturity
F = The bond par or face value
t = Time
T = The number of periods until the bond's maturity date
Since the bond pays 7% semi- annually, we will divide 7%/2 = 3.5%, and multiply 25 years by 2 = 50 years
Therefore C = 3.5 × 10,000 = 35,000, T = 50, Y = 5.8/100 = 0.058
P = ∑ 35,000/ ( 1 + 0.058)∧25 + 10,000/( 1 + 0.058)∧50
P = ∑ 35,000 / ( 1.058)∧25 + 10,000/ ( 1.058)∧50
P = ∑ 35,000/( 4.0939420648) + 10,000/ ( 16.7603616303)
P = ∑ 8, 549.22 + 596.65
= 9,145.87
The highest price the investor will be willing to pay $ 9,145.87