Taking into account the deduction of the service charge

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A bond with a $100 par value has a 5.25% annual coupons and is due to mature at the end of 16 years. The bond will be redeemed at maturity for an amount equal to its par value less a service charge. The service charge is equal to 25% of the excess (if any) of the par value over the purchase price. A prospective purchaser offers a price that will produce a yield equivalent to a 7% anual effective interest rate, taking into account the deduction of the service charge. It is noted that (1.07)^16=3. In which of the following ranges does the price lie?

A. < $65, B. > $65 but < $71, C. > $71 but < $77, D. > $77 but < $83, E. > $83

Please, no excel spreadsheets.

Reference no: EM13895418

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