6) A 10 year bond with face value F and with semiannual nominal coupon rate 5% is subject to a 6% tax (at maturity, i.e. after 10 years) on the amount of discount that the bond is bought at. If the after tax nominal semiannual yield rate is 6% and the after tax price at this yield rate is $9,200 then find the face value F.

6) A 10 year bond with face value F and with semiannual nominal coupon rate 5% is subject to a 6% tax (at maturity, i.e. after 10 years) on the amount of discount that the bond is bought at. If the after tax nominal semiannual yield rate is 6% and the after tax price at this yield rate is $9,200 then find the face value F.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.2IP

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Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the year), has 2 years left to maturity, and has a discount rate of 6.5%. Which of the following would give you the present value - i.e. the price - of the bond? Select one: Oa. Present Value = Price = $10,500/(1.065)? Ob. Present Value = Price = [$500/(1.065)] + [$500/(1.065)²] + ... + [$500/(1.065)N), where N=0 O c. Present Value = Price = [$500/(1.065)] + [$500/(1.065)²] +[$10,000/(1.065)²] O d. Present Value = Price = [$500/(1.065)] + [$500/(1.065)²]
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