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...
-
Explain how using an IFAS table impacts the understanding of a companys internal resources and capabilities?
-
The current market interest rate on U-Store City Investment Building bonds is $10 \%$, compounded semiannually. The original bonds are sold as $\$ 1,000,12 \%$ interest rate notes. A batch of bonds...
-
Golden Inc. issues $4 million, 5-year, 10% bonds at 102, with interest payable on July 1 and January 1. The straight-line method is used to amortize bond premium. (a) Prepare the journal entry to...
-
The December 3 1 , 2 0 2 4 , unadjusted account balances for Demon Deacons Corporation are presented below. Accounts Balance Cash $ 9 , 9 0 0 Accounts Receivable 1 4 , 9 0 0 Prepaid Rent 7 , 0 8 0...
-
You are required to study the information provided below concerning a Namibian listed company called Deep Yellow Limited, that operates in the mining industry. You should compile a report based on...
-
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?
-
An airplane is ying through a thundercloud at a height of 2 000 m. (This is a very dangerous thing to do because of updrafts, turbulence, and the possibility of electric discharge.) If there are...
-
A traditional income statement would separate product costs (COGS) and period costs (administration, selling, marketing, etc.). Can these costs also be classified as either variable or fixed? If so,...
-
Aria Kim is a Marketing Director for Petopia Products, a manufacturer of pet products with an extensive product catalogue and multiple product lines. With her recent promotion, she is responsible for...
-
The short-time Fourier transform (STFT) is often used for computing the spectrogram of an audio signal. Assume that the audio signal is sampled at F kHz, and the windows of A samples are used for...
-
On July 1, 2016, Idaho Systems Company purchased for $54,000 a new machine that has an estimated useful life of six years (or 300,000 cutting operations), after which the expected salvage value is...
-
7. What is the output of the following program? int a = 10; void main() 8. { int a 20; } cout < < a < < ::a; Consider the following program: int main() int k = 0; int j = 0; while (k == j) } int k;...
-
Compute the derivative of the following functions. + 1 h(x) .2 x?
-
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?
-
f(x)=5x-3, g(x)=x-5 (f+g)(x)=(Simplify your answer.)
-
(5) A small maintenance project consists of the following jobs whose precedence relationships are given below: Job 1-2 1-3 2-3 2-5 3-4 Immediate Predecessor 15 15 3 5 8 8 Activity 3-6 4-5 4-6 5-6 6-7...
-
Let X be a binomial random variable with the probability distribution f(x) shown below. Find the probability distribution of the random variable Y=x. f(x)= Bere 3-x x=0,1,2,3 elsewhere Complete the...
Study smarter with the SolutionInn App