Consider a $1,000 par value bond with a 7% annual coupon. There are 20 years remaining until
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Question:
Consider a $1,000 par value bond with a 7% annual coupon. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%. You plan to purchase the bond now and hold it for 5 years. Your required return on this bond is 10%. How much would you be willing to pay for this bond today? (hint: find the expected bond value in 5 years)
a.$ 875
b. $ 970
c. $ 859
d. $ 924
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