Question

Corporate bonds from Dagofi Radar are selling at 88.354, bonds from Chambers Translation are selling at 112.894, and bonds from Essentia Inc. are selling at 96.262. If Roger wants to buy two bonds with a par value of $1,000 each from Dagofi Radar, five bonds with a par value of $500 each from Chambers Translation, and four bonds with a par value of $1,000 each from Essentia Inc., how much can he expect to spend?
a.
$8,439.91
b.
$8,500.00
c.
$2,975.10
d.
$9,343.97

Answer 1

Interpret the quoted prices as percent of par (price per $100 of face).

- Dagofi: 2 bonds × $1,000 = $2,000 par; cost = 88.354% of $2,000 = 0.88354 × 2,000 = $1,767.08
- Chambers: 5 bonds × $500 = $2,500 par; cost = 112.894% of $2,500 = 1.12894 × 2,500 = $2,822.35
- Essentia: 4 bonds × $1,000 = $4,000 par; cost = 96.262% of $4,000 = 0.96262 × 4,000 = $3,850.48

Total = $1,767.08 + $2,822.35 + $3,850.48 = $8,439.91

Answer: a. $8,439.91