Assume a bond with a face value of $100 000 pays semi-annual coupons of 6% p.a.in perpetuity.This bond has a discount rate of 8% p.a.What is the price of the bond?

A) $ \$ 37500 $
B) $ \$ 75000 $
C) $ \$ 100000 $
D) $ \$ 150000 $

Question

Assume a bond with a face value of $100 000 pays semi-annual coupons of 6% p.a.in perpetuity.This bond has a discount rate of 8% p.a.What is the price of the bond?

A) $ \$ 37500 $
B) $ \$ 75000 $
C) $ \$ 100000 $
D) $ \$ 150000 $

Quizplus · Accepted Answer

According to equation 12.2,the price of this bond can be calculated as follows: P = 3000/0.04,where the 3000 is the semi-annual coupon payment.Hence,the price is $75 000.

Assume a Bond with a Face Value of $100 000 $37500 \$ 37500 $37500

Assume a Bond with a Face Value of $100 000 $\$ 37500$