26 Jul HOW MUCH SHOULD SAM BE WILING TO PAY NOW FOR THE BOND?
Sam has the opportunity to purchase a US Treasury bond that matures in eight years and has a face va Show more Sam has the opportunity to purchase a US Treasury bond that matures in eight years and has a face value of $10000. This means that Sam will receive 10000 cash when the bonds maturity date is reached. In addition the bond stipulates a fixed nominal intereste rate of 8% of the face value. The interest payments are made to the bondholder every three months so each payment amounts to 2% of the face value. He would like to earn 10% interest compounded quarterly on his investment because interest rates in the economy have risen since the bond was issued. How much should Sam be wiling to pay now for the bond? Draw a cash flow diagram. Show less
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