Answered

Discover a wealth of knowledge at Westonci.ca, where experts provide answers to your most pressing questions. Get immediate and reliable solutions to your questions from a knowledgeable community of professionals on our platform. Our platform provides a seamless experience for finding reliable answers from a network of experienced professionals.

A 10,000 par value bond with coupons at 8%, convertible semiannually, isbeing sold 3 years and 4 months before the bond matures. The bond is redeemable at $C, and purchase will yield 6% convertible semiannually to the buyer. The price of the bond was $5,640 three years and six months before maturity (immediately after the coupon payment).

Required:
Calculate the market price of the bond, assuming compound interest throughout.

Sagot :

abiolataiwo2015

Answer:

$5,563

Explanation:

Calculation to determine the market price of the bond

First step is to calculate price of the bond 3 years and 4 months before the bond matures

Bonds price=$5,640 (1.03)^2/6

Bonds price=$5,695.84

Second step is to calculate the accrued coupon

Accrued coupon=1,000(8%/2)[(1.03)^2/6−1÷0.03

Accrued coupon=1,000(.04)[(1.03)^2/6−1÷0.03]

Accrued coupon=400[(1.03)^2/6−1÷0.03]

Accrued coupon=$132.02

Now let determine the the market price of the bond

Market price of Bond=$5,695.84−$132.02

Market price of Bond=$5,563

Therefore the market price of the bond is $5,563

Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. We appreciate your time. Please come back anytime for the latest information and answers to your questions. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.