Assume that a 15-year,$1,000 face value bond pays interest of $37.50 every 3 months.If you require a simple annual rate of return of 12 percent,with quarterly compounding,how much should you be willing to pay for this bond?
A) $821.92
B) $1,207.57
C) $986.43
D) $1,120.71
E) $1,358.24

Question

Quizplus · Accepted Answer

The bond pays $37.50 quarterly, and the required quarterly rate is 3% (12% annual rate divided by 4). The bond's price is the present value of these cash flows plus the present value of the $1,000 face value, discounted at the quarterly rate over 60 periods (15 years x 4).

Assume That a 15-Year,$1,000 Face Value Bond Pays Interest of $37.50