Bond is IOU with face value (V), coupon rate (b), no. of payment periods/year (C). dividend (1), and maturity date (n). Amount paid for the bond is P. |= Vb/c General equation for i*: 0=-P+ I(P/A,i*,nxc) + V(P/F,i*,nxc) A $10,000 bond with 6% interest payable quarterly is purchased for $8000. If the bond matures in 5 years, what is the ROR (a) per quarter, (b) per year? (a) 1= 10,000(0.06)/4 = v per quarter ROR equation is: 0 = - 8000 + 150(P/A,i*,20) + 10,000(P/F,i*,20) By trial and error or spreadsheet: i* = v per quarter (b) Nominal i* per year = 2.8(4) = v per year Effective i* per year = (1 + 0.028)4 -1= v per year %3D

Bond is IOU with face value (V), coupon rate (b), no. of payment periods/year (C). dividend (1), and maturity date (n). Amount paid for the bond is P. |= Vb/c General equation for i: 0=-P+ I(P/A,i,nxc) + V(P/F,i,nxc) A $10,000 bond with 6% interest payable quarterly is purchased for $8000. If the bond matures in 5 years, what is the ROR (a) per quarter, (b) per year? (a) 1= 10,000(0.06)/4 = v per quarter ROR equation is: 0 = - 8000 + 150(P/A,i,20) + 10,000(P/F,i,20) By trial and error or spreadsheet: i = v per quarter (b) Nominal i* per year = 2.8(4) = v per year Effective i* per year = (1 + 0.028)4 -1= v per year %3D

Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)

5th Edition

ISBN:9781305084766

Author:Saeed Moaveni

Publisher:Saeed Moaveni

Chapter20: Engineering Economics

Section: Chapter Questions

Problem 1P

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