Answer:
= $877.32
Explanation:
The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).
Value of Bond = PV of interest + PV of RV
The value of bond for Jasper Inc can be worked out as follows:
Step 1
PV of interest payments
Semi annul interest payment
= 4.5% × 1000 × 1/2
= 22.5
Semi-annual yield = 5.6/2 = 2.8% per six months
Total period to maturity (in months)
= (2 × 19) = 38 periods (Note it was sold a year ago)
PV of interest =
22.5 × (1- (1+0.028)^(-38)/0.028)
= 22.5 ×23.20871226
= 522.196
Step 2
PV of Redemption Value
= 1,000 × (1.056)^(-19)
= 355.128
Price of bond
= 522.19 + 355.12
= $877.32
