You have been asked to estimate the value of a 10-year bond with a coupon that will be low initially but it is expected to grow later in the bond's life. The coupon is expected to be 5% of the face value of the bond (which is $ 1000) for the first 5 years, and will increase by 1% every year for the next 5 years, the coupon rate will be 6% in year 6, 7% in year 7, 8% in year 8, 9% in year 9 and 10% in year 10. 

Estimate the value of this bond as the market interest rate is 5.7%

Answer rating: 100% (QA)

To estimate the value of the bond we can calculate the present value of its future cash flows using ... View the full answer