Assume that a 15-year, $1,000 face value bond pays interest of $37.50 every 3 months.If you require a simple annu rate of return of 12 percent, with quarterly compounding, how much should you be willing to pay for this bond?

Question

Quizplus · Accepted Answer

The bond pays $37.50 quarterly, and the required return is 3% per quarter (12% annually with quarterly compounding). The present value of these payments plus the face value discounted at 3% per quarter gives the bond price of $1,207.57.

Assume That a 15-Year, $1,000 Face Value Bond Pays Interest