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a $20,000 bond has annual coupons and is redeemable at the end of 14 years for $22,600. it has a base amount equal to $18710 when purchased to yield 4%. find its base amount if it were to be purchased to yield 5%

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anshumanaryan799

The $20,000 bond has annual coupons and is redeemable at the end of 14 years for $22,600. it has a base amount equal to $18710 when purchased to yield 4%. $16,718.87 its base amount if it were to be purchased to yield 5%.

Let us first find out the coupon amount using the bond price formula:

Bond Price is given as:

Bond Price = C * 1-(1/(1+i)/i + M/(1+i)^n

Here,

Bond Price = $18,710

M = Maturity amount = $22,600.00

n = Number of years = 14

C = Coupon

i = Yield = 4% = 0.04

So,

18,710 = C * 1 - (1/( 1+0.06)^14)/0.06 + 22600/(1+0.04)^14.

Bond Price = $16,718.87.

  • A bond is a debt instrument similar to a promissory note.
  • Borrowers issue bonds to raise money from investors who lend them money for a period of time.
  • When you buy a bond, you are lending it to the issuer, which can be a government, community, or corporation.

Learn more about bond here: https://brainly.com/question/25965295

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