[SOA 318] A ten-year bond with a face amount of 1000, a redemption value of C, and an annual coupon rate 7% paid semiannually is purchased at a discount to yield an annual nominal rate of 7.5%, convertible semiannually. The accumulation of discount in the 12th coupon is 7. Calculate C.

[SOA 318] A ten-year bond with a face amount of 1000, a redemption value of C, and an annual coupon rate 7% paid semiannually is purchased at a discount to yield an annual nominal rate of 7.5%, convertible semiannually. The accumulation of discount in the 12th coupon is 7. Calculate C.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

[SOA 318] A ten-year bond with a face amount of 1000, a redemption value of C, and an annual coupon rate of
7% paid semiannually is purchased at a discount to yield an annual nominal rate of 7.5%, convertible
semiannually.
The accumulation of discount in the 12th coupon is 7.
Calculate C.

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