Answer:
bond under priced is $14.18
Explanation:
given data
market price = $1,050
annual interest = $100
rate of return = 9 percent
time period = 10 year
solution
we get here bond mis priced so for we get first theoretical Price of the bond that is
theoretical Price of the bond = annual interest × [tex]\frac{1- (1+r)^{-t }}{r}[/tex] + [tex]\frac{1000}{(1+r)^t}[/tex] ........1
theoretical Price of the bond = 100 × [tex]\frac{1- (1+0.09)^t }{-10}[/tex] + [tex]\frac{1000}{(1+0.09)^{10}}[/tex]
theoretical Price of the bond = $1064.18
but actual Price is $1050
so here bond is under priced as $1064.18 - $1050
bond under priced is $14.18
