If a 20-year bond pays interest of 8 percent semiannually, the present value of the bond is calculated based upon 4 percent and 40 periods.

Question

Quizplus · Accepted Answer

The present value of a bond with semiannual interest payments is calculated using the following formula: PV = PMT * [1 - (1 + r/2)^-n]/(r/2) + FV/(1+r/2)^n

Where PV is the present value, PMT is the semiannual payment, r is the semiannual interest rate, n is the number of periods (in this case, 40 periods = 80 semiannual periods), and FV is the face value or principal amount of the bond.

Using a 4 percent semiannual interest rate and 80 semiannual periods, we can solve for the present value of the bond. Therefore, the statement is true.

If a 20-Year Bond Pays Interest of 8 Percent Semiannually