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Home Q & A Board Science-Related Homework Help Mathematics
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majarm majarm
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6 years ago
A $25 000, 8% bond with semi-annual coupons, redeemable at par in 12 years, is purchased to yield 6% compounded semi-annually. Determine the gain or loss if the bond is sold two years later at 107.25.
Textbook 
Contemporary Business Mathematics with Canadian Applications

Contemporary Business Mathematics with Canadian Applications


Edition: 11th
Authors:
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#1
6 years ago
FV = $25 000; P/Y = C/Y = 2; b =   = 0.04; i =   = 0.03; n = 10(2) = 20
Since b > i, the bond sells at a premium.
Premium = [25 000(0.04 )- 25 000(0.03)]
   = 250(14.877475) = $3 719.37
Book value: 25 000 + 3 719.37   = $28 719.37
Proceeds: 25 000(1.0725)   = $26 812.50
Loss    = $1906.87
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