How is the rate of interest 6.5%? I didnt understand that. Can you somve the question using a regular calculator the formula sheet provided.

a) Rate of interest r=6.5% b) Redemption value at the end of 2034= 1000 c) Each coupoun payment 10005.5%=55/2=27.5 d) value of bond =905.09 1000 pvf (15y,6.5%)+27.5 pvaf (30y , 3.25%) e) My friend is selling the bond less than fair value because the market interest rate is 6.5 per but the bond coupon payment is only 5.5per which doesn't attracts to purchase. Therefore for compensation he is selling at less than face value Your friend didn't budget his money very well and now has no money to get through the rest of the term. He approaches you and asks if you are willing to buy a bond he owns. He is selling it for $901.32. The bond is a TD 5.4 of 2034 (matures in 15 years). It has a face value of $1,000 and similar risk bonds issued today are yielding 6.0%. Assume interest is compounded semi-annually and coupon payments are received semi-annually. 5 marks a. What r value should be used in the calculations? b. How much will TD give you for the bond at the end of 2034 ? c. How much will each coupon payment be? d. What is the value of this bond? e. Why is your friend selling the bond at a price that is not equal to its face value? Time Value of Money Formula Sheet The formulas below will be provided to you on the final exam as you see them below. The definitions at the bottom will not be ineluded. FVSA=PVSA(1+r)nPVSA=(1+r)nFVSAFVOA=PMT[r(1+r)n1]FVAD=PMT[r(1+r)n1](1+r)PVOA=PMT[r1(1+r)n]PVAD=PMT[r1(1+r)n](1+r)PVperpetuity=rPMT Remeber: Bondali)periad: end-start year price: par value price % Own morey to invest: share eprice x margind % Borrow from brokor: Borrow from brokor: Share price (1-marginal /0) Capital Gain: share x (sell-buy price) Approx YTM: 2F+PYC+nFP onnual Amral capon poyment: Face value X coupon Yield: copital gain-criant barovedxr (bond) Total proveats: pm+xpn Effective Rate for Payment Period =[1+mrnom]pm1 Remeber Effective Rate for Payment Period when rate is stated as APR =pAPR Where; r= interest rate or discount rate to be used in calculation n= number of periods over which investment is being calculated ( n= years x payments) PMT = payment amount rnom= is the nominal rate given in the question (used to calculate r to be used in question) m= compounding frequency per year p= payment frequency per year