Your client has offered a 5-year, $1,000 par value bond with a 10 percent coupon. Interest on

Question:

Your client has offered a 5-year, $1,000 bond with a 10 percent coupon. Interest on this bond is paid quarterly.
1) If your client is to earn a nominal rate of return of 12 percent, compounded quarterly, how much should he pay for the bond?
2) How much should he pay if it is a perpetual bond?

Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...