The answer to the question is highlighted in red. Explanations are highlighted in green.
3. Devine Divots issued a bond a few years ago that has a face value equal to $1,000 and pays investors $30 interest every six months. The bond has eight years remaining until maturity. If you require a 7 percent rate of return to invest in this bond, what is the maximum price you should be willing to pay to purchase the bond?
a. $761.15
b. $939.53
c. $940.29
d. $965.63
e. $1,062.81
Using a financial calculator, enter N = 8 x 2 = 16, I = 7/2 = 3.5, PMT = 30, FV = 1,000. Solving for
PV gives PV = -939.53