assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. the bond has a face value of $1,000, and it makes semiannual interest payments. if you require an 9.5% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Answer :

The maximum price you should be willing to pay for the bond is $1,105.69.

What is a bond?

A bond could be a style of security employed in finance wherever the establishment (debtor) owes the holder (creditor) a debt and is needed, counting on the terms, to repay the bond's principal (i.e., the quantity borrowed) at the bond's maturity further as interest (referred to because the coupon) over a preset amount of your time. The interest is often due at preset intervals, such biyearly, annually, and fewer often at numerous times. A bond is thus a sort of loan or IOU. With the assistance of bonds, the receiver will finance semipermanent investments or, within the case of state bonds, current expenses.

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