Suppose you buy a bond that will pay $1000 in ten years along with an annual coupon

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Suppose you buy a bond that will pay $1000 in ten years along with an annual coupon payment of $50 and the interest rate is 4%. Answer the following questions:

What is the value of this bond?

Now suppose the bond has no coupon payments (it is a “zero coupon” bond) but still pays $1000 in ten years. What is the value of this bond?

What would happen to the value of the bond if the inflation rate unexpectedly goes up? What the bond value increase or decrease?

Now suppose the bond still pays an annual coupon of $50 but the interest rate drops to 2%. What is the new value of this bond?

Related Book For answer-question

Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

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Posted Date: Jan 17, 2021 02:34 PM

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Suppose you buy a bond that will pay $1000 in ten years along with an annual coupon

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Coupon Bond FV 1000 PMT 50 r 4 N 10 PV 500041 110410 100... View the full answer

Principles of Corporate Finance

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