Suppose a bond with no expieration date has a face value of 10,000 and anually p
ID: 1108727 • Letter: S
Question
Suppose a bond with no expieration date has a face value of 10,000 and anually pays a fixed amount of interest of 800$. (In the table provided. In the table provided to the right, caluclate and enter either the interest rate of the bond would yield to a bond price at each of the interest yields shown.
Chapter 34 Problem #2
A. When the bond price is $8000, what is the interest rate?
B. If the interest rate is 8.9% what is the bond price?
C. If bond price in $10,000, what is the interest rate?
I need some step by step help on this homework please. thank you
Explanation / Answer
Interest Rate = Coupon / Bond Price
A.
Interest Rate = 800 / 8000
= 0.1 or 10%
B.
Interest Rate = Coupon / Bond Price
0.089 = 800 / Bond Price
Bond Price = 800 / 0.089
= $8,988.76
C.
Interest Rate = 800 / 10,000
= 0.08 or 8%
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