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you have the opportunity to purchase a bond from a secondary market. the face value of the bond is $12,000, and its coupon is 3%, paid monthly. it will mature is 5 years. you find that you can get 6% interest, compounded monthly, elsewhere.
determine the most you should pay for this bond

Respuesta :

The most you should pay for this Bond will be  $7345.02

What do you mean by Bond?

  • Bonds can be defined as an  investment securities where an investor lends money to a company or a government for a set period of time.
  • It is usually done in exchange for regular interest payments

In the above case,

Monthly rate = 6% / 12 = 0.5%

Let the purchase Price be  P.  

The Monthly coupon

=  Face value * Coupon rate / 12

= 12,000 * 0.03  / 12 = $30

Number of periods = 5 * 12

                                = 60 months

So, Face value (P/F, 0.5%, 60)

=  Coupon* (P/A, 0.5%, 60)  +  purchase Price

= 12,000(0.7414) = 30(51.726) + P

P = $7345.02

Hence , The most you should pay for this Bond will be  $7345.02

To know more about Bond from the given link

https://brainly.com/question/25965295

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