The next two questions 28 and 29 are based on the information below: Consider a

Question

The next two questions 28 and 29 are based on the information below: Consider a three-year coupon bond with the face value of $10,000 and the coupon rate of 5.5%. Suppose that the market interest rate is currently 5%. What is the bond worth today if you buy a newly issued three-year bond as described above? a. $10,000 28. b. $10,177 c. $9,653 d. $10,136 29. Suppose that one year has elapsed since you bought the above bond. You have just received the first coupon payment, and suddenly the market interest rises to 5.5% and is expected to stay at 5.5% for the foreseeable future. What is the bond worth? a. $10,000 b. $10,177 c. $9,653 d. $10,136

Explanation / Answer

28.

use present value of annuity formula=P*((1-(1+r)^(-n))/r)+FV/(1+r)^n

bond worth today is=(10000*5.5%)*((1-(1+5%)^(-3))/5%)+10000/(1+5%)^3

=10136

29.

bond worth=(10000*5.5%)*((1-(1+5.5%)^(-2))/5.5%)+10000/(1+5.5%)^2

=10000

the above is answer..

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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