Assume that you are considering the purchase of a 13-year, noncallable bond with
ID: 2738735 • Letter: A
Question
Assume that you are considering the purchase of a 13-year, noncallable bond with an annual coupon rate of 7.70%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 14.00% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
Available answers: $627.49, $533.36, $658.86, $514.54, $571.01
Explanation / Answer
use pv formaule in excel to find it
pv(rate,nper,pmt,fv,type)
rate=14%/2(semi annual)
nper=13*2=26
pmt=-7.7%/2*1000 (coupon payment)
fv=-1000
type=0
=PV(7%,26,(-7.7%*1000/2),-1000,0)
=$627.49