Nunavet ocean cruises sold an issue of 12-year $1,000 par bonds to build new ships. the bonds pay 4.85% interest, semi-annually. today's required rate of return is 9.7%. how much should these bonds sell for today? round off to the nearest $1.

bond market value $660

Explanation:

We need to calculate the present value of the maturity and the cuopon payment using the effective rate of 9.7%

First we do the annuity:

C  24.25  (1,000 face value x 4.85 bond rate / 2 )

time  24.00 (12 year 2 payment a year)

rate  0.04850 (current rate divide by 2 to get it annually)

PV$339.55

Then present value of the maturity

Maturity   1,000.00 the face value of the bond

time   24.00

rate   0.04850

PV   320.89

Finally we add them together:

PV coupon payment$339.5545

PV maturity  $320.8910

Total$660.4455

rounding to nearest dollar

bond market value $660

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explanation: