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Determine the price of a $1 million bond issue under each of the following independent assumptions: Maturity Interest Paid Stated Rate Effective (Market) Rate 1. 10 years annually 10% 12% 2. 10 years semiannually 10% 12% 3. 10 years semiannually 12% 10% 4. 20 years semiannually 12% 10% 5. 20 years semiannually 12% 12%

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hyderali230

Answer:

1. $886,996  

2. $885,301  

3. $1,124,622  

4. $1,171,591  

5. $1,000,000  

Explanation:

Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula  

Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

All the working is don in an MS Excel File attached with this answer, PLease find that.

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