You own a 20- year, $ 1,000 par value bond paying 7 percent interest annually. The market

Question:

You own a 20- year, $ 1,000 bond paying 7 percent interest annually. The market price of the bond is $ 875, and your required rate of return is 10 percent.
a. Compute the bond’s expected rate of return.
b. Determine the value of the bond to you, given your required rate of return.
c. Should you sell the bond or continue to own it?
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...