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|