Assume that you are considering the purchase of a 20-year,noncallable bond with an annual coupon rate of 9.5%.The bond has a face value of $1,000,and it makes semiannual interest payments.If you require an 9.5% nominal yield to maturity on this investment,what is the maximum price you should be willing to pay for the bond?

Question

Quizplus · Accepted Answer

The coupon rate of the bond is equal to the required yield to maturity, so the bond should be priced at par value, which is $1,000. Any price above $1,000 would result in a yield to maturity lower than the required yield of 9.5%, and any price below $1,000 would result in a yield to maturity higher than the required yield. Therefore, the maximum price to be willing to pay for the bond is $1,000.

Assume That You Are Considering the Purchase of a 20-Year,noncallable