Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Question

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The correct answer is A because the maximum price you should be willing to pay for the bond is $891.00. This is because the bond has a face value of $1,000 and makes semiannual interest payments of $47.50 ($1,000 x 9.5% / 2). If you require an 11.0% nominal yield to maturity on this investment, then the present value of the bond's future cash flows is $891.00.

Rogoff Co'S 15-Year Bonds Have an Annual Coupon Rate of 9