Asked by Sukhkaran Dhaliwal on May 01, 2024
Verified
A Province of Ontario bond has 14½ years remaining until it matures. The bond pays $231.25 interest at the end of every six months. At maturity, the bond repays its $5,000 face value in addition to the final interest payment. What is the fair market value of the bond if similar provincial bonds are currently providing investors with a return of 3.8% compounded semi-annually?
Compounded Semi-Annually
Interest on an investment is calculated and added to the principal every six months, with future interest then calculated on the new total.
Fair Market Value
The price at which an asset would change hands between a willing buyer and a willing seller, both having reasonable knowledge of all the relevant facts.
Provincial Bonds
Provincial bonds are debt securities issued by a provincial government in Canada to finance its expenditures and obligations.
- Calculate the contemporary value of cash inflows from annuities, bonds, and leasing agreements.
- Examine the financial significance of contracts and payments across different interest rate environments.
Verified Answer
AM
Learning Objectives
- Calculate the contemporary value of cash inflows from annuities, bonds, and leasing agreements.
- Examine the financial significance of contracts and payments across different interest rate environments.