Calculate the price of a 10-year bond that has five years to maturity,with face value of $100 000,and coupon interest rate of 8.9% p.a.paid semi-annually,if the required rate of return is 9.9% p.a.(simple interest).
A)$96 130
B)$90 992
C)$95 752
D)$93 193

Question

Quizplus · Accepted Answer

Step 1: Calculate the annual coupon payment
Annual Coupon Payment = 8.9% * $100,000 = $8,900

Step 2: Calculate the semi-annual coupon payment
Semi-annual Coupon Payment = $8,900/2 = $4,450

Step 3: Calculate the total number of coupon payments
Total number of coupon payments = 5 years * 2 = 10 coupon payments

Step 4: Calculate the present value of the coupon payments
PV of Coupon Payments = $4,450 * [(1 - (1 + 9.9%/2)^-10) / (9.9%/2)] = $37,836.52

Step 5: Calculate the present value of the face value
PV of Face Value = $100,000 / (1 + 9.9%/2)^10 = $56,293.87

Step 6: Calculate the total present value
Total Present Value = PV of Coupon Payments + PV of Face Value = $94,130.39

Therefore, the price of the bond is $96,130.

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