Yasir strikes oil while working in his back yard. He sells his oil rights to an oil company for $50 million. He wants to use the money for his (early) retirement, but also for living expenses over the next 20 years. His financial advisor recommends he use all of the $50 million to buy a U.S. treasury bond that pays semiannual coupons with an annual coupon rate of 8%, and has 20 years remaining until maturity. The bond is selling for $1,050 and the current yield to maturity on similar bonds is 7 %. Using what he learned in his finance courses, Yasir estimates the PV of the coupon payments, the PV of the bond's par value and the true value of the bond before calls his broker back. What did Yasir probably tell his broker and why? As part iof your answer, replicate Yasir's calculations.
Steps:
(i) Using the appropriate table, compute
PV of coupon payments=
PV of par value =
Price of Bond (B)=