A 6-year accumulation bond with face value $10,000 and redemption value $10,150,reinvests the semi-annual coupons in the bond and pays the accumulated value of them out upon redemption,along with the redemption value.The bond pays interest at j₂ = 4%.What is the price to yield j₂ = 5%? A)$7735.69 B)$9430.09 C)$9541.62 D)$9598.65

Question

Quizplus · Accepted Answer

To solve this problem, we need to use the formula for the present value of a bond:

PV = (C/i)(1 - 1/(1+i)^n) + F/(1+i)^n

where PV is the present value of the bond, C is the coupon payment, i is the yield, n is the number of periods, and F is the face value.

In this case, we can calculate the semi-annual coupon payment as 0.04/2 * $10,000 = $200. The number of periods is 6 years * 2 = 12 semi-annual periods. The face value is $10,150. Plugging these values into the formula, we get:

PV = ($200/0.05)(1 - 1/(1+0.05)^12) + $10,150/(1+0.05)^12
PV = $9,541.62

Therefore, the price to yield 5% is $9,541.62. The correct answer is C.

A 6-Year Accumulation Bond with Face Value $10,000 and Redemption