I trying to determine the range of prices that one should consider in order to purchase a bond. The information provided is as follows:
The bond has a face value of $7000 and a bond rate of of 6% per year, payable at 3 percent semiannually. The bond has a remaining life of 5 years. If you want to earn at least 8% per year compounded semiannually, at waht range of prices should you be willing to purchase the bond.
So, I am not sure how to determine my monthly payment (if there is a min and a max or just one payment I shoudl be considering) or how to determine the price ranges.
I have determined that the number of periods is 10 (5 years x 2 periods/year). To calculate the payment amount, I am not sure which rate to use--3% or 8%/2 or both to determine min and max prices. If I use both 3% and 8%/2, I calculate payments of $210 and $280, respectively. From there I calculate the min and max purchase prices using the excel formula PV(rate, nper, pmt,-pv). However, I am further confused on which rate I use in this equation. Do I use the 3% and 8%/2 that I used to calculate the payment/period or the bond rate of 6%.
Can someone please help guide me through this problem. THank you.
The bond has a face value of $7000 and a bond rate of of 6% per year, payable at 3 percent semiannually. The bond has a remaining life of 5 years. If you want to earn at least 8% per year compounded semiannually, at waht range of prices should you be willing to purchase the bond.
So, I am not sure how to determine my monthly payment (if there is a min and a max or just one payment I shoudl be considering) or how to determine the price ranges.
I have determined that the number of periods is 10 (5 years x 2 periods/year). To calculate the payment amount, I am not sure which rate to use--3% or 8%/2 or both to determine min and max prices. If I use both 3% and 8%/2, I calculate payments of $210 and $280, respectively. From there I calculate the min and max purchase prices using the excel formula PV(rate, nper, pmt,-pv). However, I am further confused on which rate I use in this equation. Do I use the 3% and 8%/2 that I used to calculate the payment/period or the bond rate of 6%.
Can someone please help guide me through this problem. THank you.