Bond Markets, Analysis and Strategies (8th Edition) Edit edition

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A bond is a debt instrument which is also called fixed-income security and is issued for raising capital. It borrows funds for a specified period of time at a fixed or variable interest rate. They are usually issued by municipalities, companies, and by governments. Owners are termed as creditors and are given preference at the time of liquidation.

Par value of a bond is an amount which issuer decides to repay to bondholders on the date of maturity.

Here, cash flows are referred to as coupon interest which is payable to bond holders for buying them and is computed as follows:

Therefore, cash flows amount to.

Compute number of periods when coupon will be payable on bonds to its holders as follows:

Thus, cash flows is an annuity of $3,500 which is payable in 20 installment semiannually for each of ten years plus the recovery of par value of $100,000 at the end of 10^th year.