Assume that you are considering the purchase of a 20-year,noncallable bond with an annual coupon rate of 9.5%.The bond has a face value of $1,000,and it makes semiannual interest payments.If you require an 8.4% nominal yield to maturity on this investment,what is the maximum price you should be willing to pay for the bond?
A)$1,105.69
B)$1,133.34
C)$1,161.67
D)$1,190.71
E)$1,220.48

Question

Quizplus · Accepted Answer

The correct answer is A because the maximum price you should be willing to pay for the bond is $1,105.69. This is because the bond has a face value of $1,000 and it makes semiannual interest payments of $47.50 ($1,000 x 9.5% / 2). If you require an 8.4% nominal yield to maturity on this investment, then the present value of the bond's future cash flows is $1,105.69.

Assume That You Are Considering the Purchase of a 20-Year,noncallable