Respuesta :
Answer:
$1,124.62
Explanation:
With interest payment every 6 months and semi-annual compounding, the number of periods of interest payment in 10 years = 20 periods.
The price to be paid for the bond will be computed by finding the present value of the interest payment (using the annuity formula) and the present value of the repayment of the face value of the bond at the end of 10 years.
[tex]Bond Price = \frac{A(1-(1+r)^{-n}) }{r} +\frac{F}{(1+r)^{n}}[/tex]
where A = the periodic interest payment = $60
r = is the periodic (not annual) rate of return = 10%/2 = 5%
n = total number of periods = 20
F = the face value of the bond = $1,000.
[tex]Bond Price = \frac{60(1-(1.05)^{-20}) }{0.05} +\frac{1,000}{(1.05)^{20}}[/tex]
= 747.73 + 376.89
= $1,124.62
