Bond formula: P = V(1+r)^-n + Vrani
Find the price of the bonds or debentures given V = 100 and r, i , and n as stated.
20 years to maturity, interest at 10% p.a. to yield 11% p.a
So I calculated, and it comes out to 91.98.
Now the second part of the question asks:
In each of the above, how many thousands of dollars face value can be purchased for
$100,000? How much of the $100,000 is left over?
I did: 100,000/91.98 = 1087 total bonds so Total Face Value - 1087.2 bonds * 100 = 108 720 Leftover = 100,000 - (1087*91.98) = $17.74 is leftover
The solutions stated otherwise: Bonds - 108 and leftover = $662
What did I do wrong?
Bonds are typically sold at $1000 face value. So a bond with a "price" of 91.98 will really cost $919.80. If you divide 100,000 by 919.80, you end up with 108.7 bonds. Since you can only buy whole bonds, that is 108 bonds at a total cost of $99,338.40. Your remainder is $661.60.
Thanks for the help. Appreciate it.