What Is the Purchase Price of a Bond Bought on 1

question 40

Multiple Choice

What is the purchase price of a bond bought on 1 March 2005,paying semi-annual coupons of 6.0% p.a.and maturing on 15 June 2007? The coupons are paid on 15 June and 15 December each year,and each compounding period has 181 days.The bond has a face value of $100 000 and a yield of 7% p.a.

• A) \( \$ 98 \quad 668.76 \)
• B) \( \$ 98 \quad 595.77 \)
• C) \( \$ 99 \quad 145.75 \)
• D) \( \$ 99 \quad 498.14 \)

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Definitions:

Step-down Method

An accounting method used for allocating indirect costs to different departments based on a hierarchy where the first allocation base is the costliest department.

Personnel Department

The division of a business that is focused on activities relating to employees, such as hiring, training, and benefits administration.

Number Of Employees

The total count of individuals employed by a business or organization at a specific point in time.

Step-down Method

A method used in accounting to allocate service department costs to production departments in stages.