Answer:
Market value of Katie Pairy Fruits bonds: $3,952.40
Explanation:
To know the current market value of the bond we will calcualte the present value of the coupon payment and the present value of the maturity:
The coupon values will be done using ordinary annuity:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
Coupon payment: $450
time 17 years
rate 0.12 (we use market rate)
[tex]450 \times \frac{1-(1+0.12)^{-17} }{0.12} = PV\\[/tex]
PV $3,588.29
and the maturirty with the present vlaue of a lump sum
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity $2,500
time 17 years
rate 0.12 (market rate)
[tex]\frac{2500}{(1 + 0.12)^{17} } = PV[/tex]
PV $364.1109
PV coupon $3,588.2938
PV maturity $364.1109
Total $3,952.4046
