21) Consider a 20-year $1,000 par value bondeith an annual coupon fate the follo

Question

21) Consider a 20-year $1,000 par value bondeith an annual coupon fate the followingt Payments. If the required rate of return on this bond is 7% correct price of this bond? rate of 5% which makes A) PV(035, 40, 25, 1000) o C) PV(035, 20, 50, 1000) ould yield the , which of the following functions w B) PV(07, 40, 50, 700) D) PV( 07, 20, 70,700) 22) Sanibel Industries has $1,000 payments. If there are 13 years remaining pr.or to mad aumel yield to maturity for these bonds? par value bonds with a coupon rate of 6 per year making semiannual coupon remaining prn or to maturity and these bonds are selling for $975 what is the value A) 5.01% D)6.29%. B) 1.91% C) 3.15% ally would include a ine for a lender of $1,000 or one year year 1 teot 8% compo ot 1,080 at t nega The ue to the present value. C) The formula for the5 tuity is useful when dealing wiyx retirement planning ca nda for the present vale of an annuky would gveut nuity with á firse paymm at occurs at the end o e at the end of year 4 fot a at occurs at the end t u ratings go from Ate AA to AAA the return thait tnvestors require goes up. greater the number of periodsy, the lower the pr 24) Which of the following statement s TRUE? A) As bond ratings go from Ate AA to esent value. B) Ceteris paribus, the C) Ceteris paribus, earning o earning eupound interest will always result in a higher balance than w interest even in the first period of interest D) The reward for postpeng consumption descrubes the interest rate from the point of

Explanation / Answer

(21) FV = Par Value = $ 1000, Tenure = 20 years or 40 half-years, Coupon Rate = 5 % per annum or 2.5 % per half-year, Return Rate = 7 % per annum or 3.5 % per half-year.

Semi-Annual Coupon = 0.05 x 1000 x 0.5 = $ 25

The market price Pm would be given by the following relationship:

Pm = 25 x (1/0.035) x [1-{1/(1.035)^(40)}] + 1000/(1.035)^(40) which translates into the following function:

PV(0.035,40,25,1000)

Hence, the correct option is (A).

NOTE: Please raise separate queries for solutions to the remaining unrelated questions.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.