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A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? (Round the answer to two decimal places.)
a) $1,115.57
b) $825.49
c) $941.36
d) $1,391.00

Respuesta :

facundobuzzetti

Answer:

Bond Price​= $1,115.58

Explanation:

Giving the following information:

Par value= $1,000

Cupon= $35

Time= 10*4= 40 quarters

Rate= 0.12/4= 0.03

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 35*{[1 - (1.03^-40)] / 0.03} + [1,000/(1.03^40)[

Bond Price​= 809.02 + 306.56

Bond Price​= $1,115.58

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