Question
Your friend didnt budget his money very well and now has no money to get through the rest of the term. He approaches you and
Your friend didnt 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 $995. The bond matures in 9 years. It has a face value of $1000 and similar risk bonds issued today are yielding 5.4%. Assume interest is compounded semi-annually and coupon payment are received semi-annually. What annual coupon payment would justify this price?
a. What value should be used in the calculations?
b. what is the current value of the bonds face value?
c. What is the annual coupon payment that justifies the price of this bond?
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