Answer :
Value of the Bonds = 907.99
The annual interest payment is divided by the number of payments per year for Bonds that pay interest more frequently than once a year. Because interest is usually paid twice a year, the annual interest payment must be divided by two.
The annual interest payment on the Nanoterials bonds is
$80 = (0.08 X 1,000),
but the semiannual payment is $40 = (80/2).
Furthermore, because interest is paid twice a year,
the required rate of return is 9% per year, or
4.5% = (0.09/2) per six-month period.
There are 40 = (20 X 2) six-month periods to maturity
Because there are 20 years to maturity.
As a result, the bonds' value is:
[tex]V = 40{}\frac{1-(1/1.045^{40} )}{0.045}[/tex] + [tex]\frac{1000}{1.045^{40} }[/tex]
V = 907.99
Value of the Bonds = 907.99
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