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A company has issued​ 10-year bonds, with a face value of​ $1,000,000, in​ $1,000 units. Interest at​ 8% is paid quarterly. If an investor desires to earn​ 12% nominal interest​ (compounded quarterly) on​ $10,000 worth of these​ bonds, what would the purchase price have to​ be?

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Answer: $7689

Explanation:

Given the following ;

Interest rate (i) = 8% ; compounded quarterly = 8%÷4 = 0.02

Nominal rate (r) = 12% ; compounded quarterly = 12%÷4 = 0.03

Period (N) = 10years = 10 × 4 = 40

Bond value(C) = $10,000

Using financial calculator ;

Bond purchase price;

$10,000(P/F, 0.03,40) + $10,000×(0.02)[P/A,0.03,40]

$10,000(0.3066) + $10,000×(0.02)(23.115)

=$3066 + 4623 = $7689

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