(a) A 1,000 par value bond with a term of 5 years and a coupon rate of 6% payable semi-annually is purchased to yield 8% convertible semi-annually. Find the purchase price using Equation 4.2 (from the lecture notes). Round your answer to the nearest cent. (b) Find the purchase price for the bond in part (a) using the premium-discount formula (Equation 4.3). Round your answer to the nearest cent. As mentioned previously, it is usually the case that the redemption amount and the face amount are the same (C = F). Unless indicated otherwise, this is assumed when bond prices are listed in the financial press. If this is so, the bond price can be expressed as P = Fv+Franj. (4.2) •Using the identity v? = 1 - jami, Equation 4.2 becomes P = C + (Fr− Cj)añj = F + F(r – j)ami. (4.3)
