What is the bond quote for a $1,000 face value bond with an 8 percent coupon rate
Question:
What is the bond quote for a $1,000 face value bond with an 8 percent coupon rate (paid semiannually) and a required return of 7.5 percent if the bond is 6.48574, 8.47148, 10.519, and 14.87875 years from maturity?
Face Value Total Payments Periodic The Bond Coupon Required → Value Will Payment Return Be 7.5% 102.531% 7.5 103.094 7.5 103.594 7.5 104.437 100% 6.48574x2 = 12.97148 8%/2 = 4% 100 8.47148 x 2 = 16.94296 4 100 10.519x2= 21.0380 4 100 14.87875 x 2 = 29.7575 4
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Bond value 1025...View the full answer
Financial Markets And Institutions
ISBN: 9781264098729
8th Edition
Authors: Anthony Saunders, Marcia Cornett
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
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