Question: Mr. Simpson buys a $1000 bond paying semi-annual bond interest at i2) = 6.5% and redeemable at par in 20 years. Mr. Simpson's desired

Mr. Simpson buys a $1000 bond paying semi-annual bond interest at i2)

Mr. Simpson buys a $1000 bond paying semi-annual bond interest at i2) = 6.5% and redeemable at par in 20 years. Mr. Simpson's desired yield rate is i2) 7%. (a) [5 marks] How much did he pay for the bond? (b) [5 marks] After exactly 5 years, he sells the bond. Interest rates have dropped and the bond is sold to yield a buyer i(2) = 6%. Determine the sale price.

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