Sam has the opportunity to purchase a US Treasury bond that matures in eight years and has
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- Sam has the opportunity to purchase a US Treasury bond that matures in eight years and has a face value of $10,000. This means that Sam will receive 10,000 cash when the bond's maturity date is reached. In addition, the bond stipulates a fixed nominal interest rate of 8% of the face value. The interest payments are made to the bondholder every three months so each payment amounts to 2% of the face value. He would like to earn 10% interest compounded quarterly on his investment because interest rates in the economy have risen since the bond was issued.
- How much should Sam be willing to pay now for the bond? Draw a cash flow diagram.
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
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