00:01
The given question, we have been given that the phase value of the bond certificate is $100 ,000.
00:06
And the interest rate that the bond is going to pay is 6 % which is going to be paid semi -annually.
00:12
And it will be for six years.
00:14
And the person wants to have a interest rate of 8%.
00:18
That is, ytm is going to be 8%.
00:21
And this will be also given semi -annual.
00:25
Now, what we need to do is we need to find out the price of the bond.
00:30
Or how much the person should pay for that certificate so clearly we are going to use the formula of price of the bond so we know that price of bond is equals c times 1 minus 1 plus the ytm rate to the power minus n divided by the ytm rate now so with this we will be having plus the terminal amount that we will be receiving is the face value of the bond that is fb divided by we will be making it to its present value so now simplifying the notations that is see refers to the coupon payment per period that is how much interest we will be receiving if we hold that bond per period so the coupon payment are semi -annual so we have a face value of hundred thousand dollars and the coupon rate is 6 % being paid semi -annuals so this amounts to $3 ,000 okay similarly we have ytm now this ytm refers to the interest rate that the holder of the bond is wanting so it's given in the question that he expects to have interest rate of 8 % now this 8 % he wants to have semi -annuals so 1 by 2 so this is going to get us 4 % or we can say 0 .04.
02:08
Similarly, we have n.
02:10
Now, this n refers to the total number of period...