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The Florida Investment Fund buys 58 bonds of the Gator Corporation through a broker. The bonds pay 10 percent annual interest. The yield to maturity (market rate of interest) is 12 percent. The bonds have a 10-year maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Using an assumption of semiannual interest payments: a. Compute the price of a bond. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Answer :

Answer: $885.30

Explanation:

Based on the information given, let's assume the face value of bond is $1,000, then the annual interest payment will be:

= 10% of $1,000

= 10% × $1000

= $100

If the semi annual interest payment is $50, then the price of the bond will be:

= [(50 × PVIFA(20, 6%)] + [$1,000 × PVIF(20, 6%)]

We will use the financial calculator and we'll get:

= $573.50 + $311.80

= $885.30

Therefore, the price of the bond is $885.30

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