# Bionca buys a 14-year bond wit

Bionca buys a 14-year bond with semiannual coupons of \$27 eachand a redemption value of \$1310. She bought the bond to yield 6%compounded semiannually. Determine the book value of this bond 8years after issue of the bond.

Book value of bond = Present value of futurecash-flows

Reqired rate of return = 6% p.a. (this will be3% [6%/2] as the coupon is received semiannually.

Time = 6 years [ this will be 12 years for 3%as the coupon is paid semi-annually)

As the bond is issued for14 years and 8 years has alreadypassed. This remaining life will be 6 years.

 Time (n) Year Coupon Redemption Discounting factor @3%k=1/(1+3%)^n Presentvalue A B C (A + B) XC 1 8.5 27 – 0.97 26.21 2 9.0 27 – 0.94 25.45 3 9.5 27 – 0.92 24.71 4 10.0 27 – 0.89 23.99 5 10.5 27 – 0.86 23.29 6 11.0 27 – 0.84 22.61 7 11.5 27 – 0.81 21.95 8 12.0 27 – 0.79 21.31 9 12.5 27 – 0.77 20.69 10 13.0 27 – 0.74 20.09 11 13.5 27 – 0.72 19.51 12 14.0 27 – 0.70 18.94 12 14.0 – 1,310 0.70 918.81 Price ofbond 1,187.57

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