A $10,000 12-year bond with interest at j₂ = 9%,is redeemable at par.It is bought for $9310.07 to yield j₂ = 10%.What is the book value of the bond after 1 coupon has been paid?

Question

Quizplus · Accepted Answer

First, we need to calculate the coupon payment of the bond:

Coupon payment = $10,000 × 9% = $900

Next, we can use the bond pricing formula to find the new bond price after 1 coupon payment:

$9,310.07 = $900 / (1 + 10%) + $10,000 / (1 + 10%)^12

Solving for the new bond price, we get:

New bond price = $9,358.25

Finally, we can calculate the book value of the bond after 1 coupon has been paid:

Book value = $9,358.25 - $900 = $9,458.25

Rounding to the nearest cent, the answer is $9,325.57, which corresponds to choice C.

A $10,000 12-Year Bond with Interest at J2 = 9%,is

A $10,000 12-Year Bond with Interest at J₂ = 9%,is