You have a $1,000, 8% bond that matures in five years and pays interest annually. You want
Question:
You have a $1,000, 8% bond that matures in five years and pays interest annually. You want to sell it, but the current interest rate on a similar investment that matures in five years is now paying 4% interest. What is the current value of your bond?
Step by Step Answer:
The value of a bond P is determined by the following formula Value of a Bond c1 r 1 c1 r 2 c1 r Y ...View the full answer
Personal Finance Building Your Future
ISBN: 978-0073530659
1st edition
Authors: Robert B. Walker, Kristy P. Walker
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.
Students also viewed these Business questions
-
You have a $1,000 bond at 4% that matures in five years and pays interest annually. You want to sell it, but the current interest rate on a similar investment that matures in five years is now paying...
-
Watson Corp. has a zero coupon bond that matures in five years with a face value of $75,000. The current value of the companys assets is $61,000, and the standard deviation of its return on assets is...
-
Colosseum Corp. has a zero coupon bond that matures in five years with a face value of $65,000. The current value of the companys assets is $62,000, and the standard deviation of its return on assets...
-
George and Weezy received $29,100 of Social Security benefits this year ($11,000 for George: $18,100 for Weezy). They also received $4,800 of Interest from jointly owned City of Ranburne Bonds and...
-
Consider the historical data visualization developed by Charles Minard describing Napoleon's army march toward and eventual retreat from Moscow. Use your imagination to develop your own data...
-
At what distance from the nucleus is the electron most likely to be found if it occupies (a) A 3d-orbital or (b) A 3s-orbital in a hydrogen atom?
-
What is an eco-asset sheet? Does the value of eco-assets balance with those of eco-liabilities and eco-equity?
-
During 2011, Company P sold $50,000 of goods to subsidiary Company S at a profit of $12,000. One-fourth of the goods remain unsold at year-end. What specific adjustments are needed on the...
-
What is the FV of a 3-year $100 annuity, if the quoted interest rate is 10%, compounded semiannually? Please show the calculations in detail for Financial calculator
-
The stockholders equity section of Jarvis Corporation at December 31 is as follows Instructions From a review of the stockholders equity section, as chief accountant, write a memo to the president of...
-
In eukaryotes, the three RNA polymerases, Pol I, II, and III, each transcribes unique genes required for the synthesis of ribosomes: 25S and 18S rRNAs (Pol 1), 55 rRNA (Pol III), and mRNAs for...
-
You buy a $10,000 Treasury note that matures in seven years at 5% interest. What will the interest payments be, and how often will you receive interest?
-
Find the first two iterations of the Jacobi method for the following linear systems, using x(0) = 0: a. 3x1 x2 + x3 = 1, 3x1 + 6x2 + 2x3 = 0, 3x1 + 3x2 + 7x3 = 4. b. 10x1 x2 = 9, x1 + 10x2 2x3 =...
-
What are the ways in which a firm can differentiate its product from those of its competitors?
-
Most all the dollars that foreigners have earned from trading with the United States have been ________ in the form of __________.
-
Most buses in a typical power flow program are load buses, for which \(\mathrm{P}_{k}\) and \(\mathrm{Q}_{k}\) are input data. The power flow program computes __________.
-
The basis for international finance is the exchange of ________.
-
If Tim Matray wanted to buy wine from a French merchant, he would pay her with ____________.
-
Young Corporation has been operating successfully for several years. It is authorized to issue 24,000 shares of no-par common stock and 6,000 shares of 8%, $100 par preferred stock. The Contributed...
-
Determine the optimal use of Applichem's plant capacity using the Solver in Excel.
-
If Hope (from problem 1) had invested the same amount of money in a no load fund with the same price per share, how many shares could she have purchased?
-
Mark owns a mutual fund with a NAV of $ 45.00 per share and expenses of $ 1.45 per share. What is the expense ratio for Marks mutual fund?
-
Hope (from problem 1) later sells her shares in the mutual fund for $ 37 per share. What would her return be in problems 1 and 2?
-
You have the time series data for 5 years (see Table below). Calculate the Box - Cox transform for this data for =2: Year 1 2 3 4 5 Original value yt 1 2 4 5 LO 6 Wt
-
Tiburon Realty Advisors, LLC, is a No. CA based commercial real estate investment firm, that on 1/1/20, acquired a 1,000,000-sq. ft. regional mall in Walnut Creek, CA for $165 million plus $5 mil-...
-
Alphabet (GOOGL) has yet to pay a dividend, but in spring 2018 it announced it would repurchase $9.6 billion worth of shares over the year. (Actually, the exact amount was $9,589,869,056known as...
Study smarter with the SolutionInn App