Mona is considering investing in a Sun Life Financial Inc. corporate bond with a $25 000 face
Question:
Mona is considering investing in a Sun Life Financial Inc. corporate bond with a $25 000 face value maturing on December 22, 2032. The bond’s coupon or bond rate is 6.25 percent and interest is paid semi-annually. The current required market rate or yield for a bond of this type is 5.42 percent. Use the bond function of the Texas Instrument BA II PLUS calculator to determine the purchase price of the bond on June 22, 2026.
Step by Step Answer:
To find the Price we need to put the follo...View the full answer
Contemporary Business Mathematics With Canadian Applications
ISBN: 9780135285015
12th Edition
Authors: Ali R. Hassanlou, S. A. Hummelbrunner, Kelly Halliday
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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