The payback of that $862.35 loan at the end of 15 years to buy that bond is $3,141.09.
The FV of an ordinary annuity of $50 every 6 months for 15 years is $2,195.14.
Therefore, Melissa accumulates $2,195.14 on the semi-annual coupon payments at 5% plus receives the par value of the bond at $1,000 for a total of $3,195.14.
Since she now has to pay off the loan of $3,141.09 she is left with a NET Profit of $54.07. And here are the online financial calculators to solve the problem:
http://www.calculatorsoup.com/calculator...
http://www.zenwealth.com/BusinessFinance...
http://www.calculatorsoup.com/calculator...
Melissa borrows an amount at an annual effective interest rate of 9% and will repay all interest
and principal in a lump sum at the end of 15 years. She uses the amount borrowed to buy a 1000 par value 15-year bond with 10% semiannual coupons. The bond redeems at par value and it is purchased to yield 12% convertible semiannually. All coupons are then reinvested at an annual nominal rate of 5% convertible semiannually. Calculate the net gain or (loss) to Mellissa at the end of 15 years.
