Answers
Answer:
Face value of Bond = $2,000
Coupon rate = 8%
Bond coupons are paid semiannually
Semiannual coupon = $2,000 * 8%/2 = $80
Time to maturity = 20 year = 40 semiannual periods
Market rate of interest (semiannual) = 9.2%/2 = 4.6%
PVFA = = [1 - 1/(1 + k) n] / k = (1 - 1/(1 + 4.6%) 40) / 4.6% = 18.1418
PVF = = 1 / (1 + k) n = 1 / (1 + 4.6%) 40 = 0.1655
Value of the bond = Semiannual coupon * PVFA + Face value at redemption * PVF
= 80 * 18.1418 +2000 * 0.1655
= $1,782.34
Value of the bond = $1,782.34
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