PLEASE PROVIDE A FULL BREAKDOWN AND SHOW WORK FOR EACH Assume that you buy a $1,

Question

PLEASE PROVIDE A FULL BREAKDOWN AND SHOW WORK FOR EACH

Assume that you buy a $1,000 par value bond at a premium and that it matures in 10 years.

a. What would you expect the value of the bond to do if the interest that investors were willing to accept on the bond did not change from the day you purchased it to maturity?

b. Why would the interest payments have a greater impact on the value of the bond initially and the maturity value have a greater impact on the value of the bond as it gets closer to the maturity date?

c. Approximately what would the value of the bond be one day before the maturity date, assuming that there is no expectation of default?

Explanation / Answer

provide the interest rate, I data,

BP = I*PVIFA(I,10) + 1000/(1+I)^10

b)

as it moves initially interest rate has the greater impact because present value of all future payment has more than the later years

c)

provide the interest rate

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