For this problem, consider a 6% coupon bond that matures in 20 years. What would

Question

For this problem, consider a 6% coupon bond that matures in 20 years.

What would be the value of this bond if interest rates fall to 5% the day after it is purchased? If interest rates fell to 5% after one year, what would the bond be worth at that point?


Question 1
What does an investor get from buying bonds? What about the organization that issues the bond?

Question 2
Is there a type of investor for whom bonds are an especially good (or bad) investment option, or is this something that all consumers should consider?

Question 3
What is the best way to purchase bonds?

Explanation / Answer

qn 1 ) investor gets a constant source of income through out the bond life in the form of coupon payments. The organization gets the funds required for its business activities through issue of bonds

qn 2) bonds are good for investors who prefer a low risk constant source of income especially retired people . it is bad for those investors who want a growth in their money by a significant amount . they should prefer riskier ones like equities and derivatives

qn 3)the best way to purchase bonds is through stock exchange listed brokers as the transaction fee will be considerably reduced and they provide a guidance and updates about the bonds

PV =-FV + FV(0.06)/1.05 + ...... FV(0.06)/1.0520 + FV/1.0520

if it changes after 1 year

PV = -FV + FV(0.06)/1.06) + FV (0.06)/1.05*1.06 +.......FV(0.06)/(1.06)(1.05)19 +FV/1.0520

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

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