Respuesta :
Answer:
The selling price of the bonds is $1,302,362.43
Explanation:
Hi, in order to find the present value of the bonds, we need to use the following formula.
[tex]Price=\frac{Coupon((1+Yield)^{n}-1) }{Yield(1+Yield)^{n} } +\frac{FaceValue}{(1+Yield)^{n} }[/tex]
Where:
Coupon = the semi-annual interest payment (1,200,000*(8%/2)=48,000)
Yield = Annual market rate (2.96%)
n = Number of semi-annual payments (5 years*2 = 10 semesters)
Let me show you how to convert an effective annual rate (annual market rate) into a semi-annual effective rate.
[tex]r(semi-annual)=(1+r(annual))^{1/2} -1[/tex]
[tex]r(semi-annual)=(1+0.06)^{1/2} -1=0.029563[/tex]
Everything should look like this.
[tex]Price=\frac{48,000((1+0.029563)^{10}-1) }{0.029563(1+0.029563)^{10} } +\frac{1,200,000}{(1+0.029563)^{10} }[/tex]
Therefore, the price is $1,307,074.18
Best of luck
