Reference no: EM132545906
A $50,000 bond bearing interest at 6.5% bond payable semi-annually matures in 3 years.
a. If the bond is bought when market rates are at 4.5% compounded semi-annually, what is the purchase price of the bond? Please do calculations of each individual cash flow using the table format used in class.
b. Price the same bond using the annuity approach where appropriate.
c. If market interest rates rise after the bond has been issued, describe what changes, if any, will occur with respect to:
i. the coupon and principal/face value payments to be made by the issuer of the bond.
ii. the price or value of the bond?
d. What was the total dollars of interest earned by the investor? (If you didn't get an answer to a, assume a price of $48,200)
e. What was the effective annual interest rate paid by the borrower?
f. What was the effective annual interest rate earned by the investor?
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