Financial: $500 6% bond yields 4% compounded semiannually

[trivialmommy]

I am not good with word problem so I need a little help.

A $500,6% bond is purchared on February 1, Year1, to yield 4% compounded semiannually. The interest on the bond is paid on February 1 and August 1 each year. Find the price of the bond if the bond is redeemable on August 1, year8.

I don't know where to begin

 

[Loren]

Re: Financial math

http://www.moneychimp.com/articles/finw ... futval.htm

 

[tkhunny]

I am not good with word problem so I need a little help.

A $500,6% bond is purchared on February 1, Year1, to yield 4% compounded semiannually. The interest on the bond is paid on February 1 and August 1 each year. Find the price of the bond if the bond is redeemable on August 1, year8.

I don't know where to begin

Please begin, ALWAYS, by constructing a diagram.

$500 *(.060/2) = 15

0.04/2 = 0.02

Semi-Annual v = 1/1.02

Price = Present Value of all Future Cash Flows = 15(v + v^2 + v^3 + ... + v^(8/1/y8)) + 500v^(8/1/y8)

That's about it, except for the ambiguity of the problem statement. Is there a bond payment on 1/1/y1 or not?

 

[tkhunny]

I am not good with word problem so

I was wrong. There is a better palce to start. Never, ever, EVER talk about yourself like that again. Feel free to practice and get better.