Question: Practice Calculating Present Value Consider corporate bonds with PMT: a coupon rate of 5% that pay interest annually (the nature of these interest payments determines

Practice Calculating Present Value

Consider corporate bonds with

  • PMT: a coupon rate of 5% that pay interest annually (the nature of these interest payments determines the compounding frequency of the bond- in this case it is annual compounding).
  • N: 29 years to maturity (maturity means the bond contract is over)
  • FV: a par value of $1,000 (this is what the bond is worth at maturity).
  • I/Y: the market rate of interest on similar debt is 11%. (the market rate reflects the riskiness of the debt instrument. when we discount the cash flows we want the rate we use for I/Y to capture risk. so the I/Y is often referred to as the "market rate" or "discount rate")

FInd the value of these bonds (solve for PV) and round to the nearest dollar

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