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Math Help - Bonds

  1. #1
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    May 2012
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    Toronto
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    Bonds

    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?
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  2. #2
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    May 2012
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    Fort Collins, CO
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    7

    Re: Bonds

    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.
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  3. #3
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    Toronto
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    Re: Bonds

    Thanks for the help. Appreciate it.
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