A 1000 par value 20-year bond sells for P and yields a nominal interest rate of 10% convertible semiannually. The bond has 9% coupons payable semiannually and a redemption value of 1200.

Calculate P.

• 914
• 943
• 1013
• 1034
• 1097

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: B

The coupons are 1000(0.09)/2 = 45. The present value of the coupons and redemption value at 5% per semiannual period is

[[math]]P=45a_{\overline{4000}|0.05}+1200(1.05)^{-40}=942.61\,. [[/math]]

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.