Answer:
Present price of bond = $886.5165
Explanation:
As for the information provided:
Coupon rate = 6% paid semiannually.
Interest = $1,000 [tex]\times \frac{6}{100} \times \frac{6}{12}[/tex] = $30
Since paid semiannually, effective return rate = 8.16/2 = 4.08%
Time period = 7 years [tex]\times[/tex] 2 = 14 periods
Future value of interest = Future annuity Value @ 4.08% for 14 periods =
[tex]\frac{1}{(1+0.0408)^1} + \frac{1}{(1+0.0408)^2} + \frac{1}{(1+0.0408)^3} + \frac{1}{(1+0.0408)^4} + \frac{1}{(1+0.0408)^5} + ............ + \frac{1}{(1+0.0408)^1^4}[/tex] = 10.50755
Interest value = $30 [tex]\times[/tex] 10.50755 = $315.2265
Principal = $1,000 [tex]\times \frac{1}{(1 + 0.0408)^1^4}[/tex] = $1,000 [tex]\times[/tex] 0.57129
= $571.29
Present price of bond = $571.30 + $315.228 = $886.5165.
