A company has issued 10-year bonds, with a face value of $1,000,000, in $1,000 units. Interest at 8% is paid quarterly. If an investor desires to earn 12% nominal interest (compounded quarterly) on $10,000 worth of these bonds, what would the purchase price have to be?

$7689

Explanation:

Given the following ;

Interest rate (i) = 8% ; compounded quarterly = 8%÷4 = 0.02

Nominal rate (r) = 12% ; compounded quarterly = 12%÷4 = 0.03

Period (N) = 10years = 10 × 4 = 40

Bond value(C) = $10,000

Using financial calculator ;

Bond purchase price;

$10,000(P/F, 0.03,40) + $10,000×(0.02)[P/A,0.03,40]

$10,000(0.3066) + $10,000×(0.02)(23.115)

=$3066 + 4623 = $7689

answer; the nav calculated at the market close at 4: 00 pm new york time;