Question:
An investor is considering purchasing a bond, with the intent of holding it for 5 years and then selling it in the market, with a $1,000 par value that pays interest every 6 months in the amount of $70 and has 10 more years until it reaches maturity. He is requiring a nominal annual rate of 16% but, due to an overall decrease in interest rates, is expecting the market to require a nominal rate of 12% when he sells it. How much should he be willing to pay for this bond?