You are considering a 10-year, $1,000 par value bond. its coupon rate is 8%, and interest is paid semiannually. if you require an “effective” annual interest rate (not a nominal rate) of 7.1225%, how much should you be willing to pay for the bond?

$1,061.28

Explanation:

We need to calculate the present value of the bond using the minimum effective rate of 7.1225%

First we calcualte the present value of an annuity of $80 for 10 years

PV = $558.72

Then we calculate the $1,000 in 10 years present value

PV =  $502.57

Then we add both values

$502.57 + $558.72 = $1,061.28

This will be the present value AKA market price which yields the minimun rate of 7.1225%

answer; a large down payment,a longer term loan, would result in a lower monthly payment;

a loan? that’s my guess, anywho.