Answer:
Value of bond = $1,101.59
Explanation:
We know,
Value of bond = [I × [tex]\frac{1 - (1+r)^{-n}}{r}[/tex]] + [tex]\frac{FV}{(1+r)^{n}}[/tex]
Given,
Face value (FV) = $1,000.
Semiannual Coupon, I = FV x semiannual coupon rate = $(1,000 × 7.25%) ÷ 2 = 72.5 ÷ 2 = $36.25
Interest rate, r = 6.20% ÷ 2 = 3.10% = 0.031
Maturity, n = 15 years = 30 periods (As it is semi annual).
Therefore,
Value of bond = [$36.25 × [tex]\frac{1 - (1 + 0.031)^{-30}}{0.031}[/tex]] + ($1,000 ÷ [tex]1.031^{30}[/tex])
or, value of bond = ($36.25 × 19.3495) + $400.17
value of bond = $701.42 + $400.17
value of bond = $1,101.59
