What Is the Price on a 5

question 11

Essay

What is the price on a 5.75-year floating rate bond that pays a semiannual coupon (no spread)? We know the following:
a. There is a coupon bond paying 3% quarterly P (0, 0.25) = 100.0448.
b. Last quarter the semiannually compounded rate was 3%.

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Definitions:

Profitability Index

A financial metric used to evaluate the potential profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Discount Rate

The interest rate used to discount future cash flows to their present value, which is crucial in time value of money calculations and in assessing investment opportunities.

Independent Projects

Investment projects whose cash flows are not affected by the acceptance or rejection of other projects.

Discounted Payback

A method in capital budgeting that determines the amount of time needed to recover the initial investment, accounting for the present value.