semi-annual coupon: 1,000 * (0.06 / 2) = $30
number of coupons "n" = 10 yrs * 2 times per year = 20
semi-annual discount rate: 0.065 / 2 = 0.0325
Present Value of the coupons, use Present Value ordinary annuity "PVoa"...
PVoa = PMT [(1 - (1 / (1 + i)^n)) / i], where i = the semi-annual discount rate
= 30[( 1- (1 / 1.0325^20)) / 0.0325]
= 30[(1 - 0.52747) / 0.0325]
= 30[14.53935]
= $436.18
PV of par paid at maturity...
PV = FV / (1 + i)^n
PV = 1,000 / 1.0325^20
= $527.47
Add the two PVs together: 436.18 + 527.47 = $963.65
how many bonds needed to finance $225,000?
$225,000 / $963.65 = 233.48, round to 234 bonds
Micalah's Crafts needs $225,000 today to purchase some new equipment. They are planning on issuing 10-year bonds with a 6% coupon rate and semi-annual interest payments. The current market rate of interest is 6.5%. How many bonds must Micalah's Crafts sell to raise the money they need? The bond face value is $1000. (6 points)
Can anybody solve this question using a formula?
