Ask Question
BusinessBusiness
Today, 12:33

Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%. You plan to purchase the bond now and hold it for 5 years. Your required return on this bond is 10%. How much would you be willing to pay for this bond today

+3
Answers (1)
  1. Today, 12:48
    0
    The multiple choices are:

    a. $1132

    b. $1044

    c. $ 962

    d. $1153

    e. $ 988

    The correct option is C,$962

    Explanation:

    The price a rational and prudent investor like me would be willing to pay for the bond today is the present worth of future cash inflows receivable from the bond issuer, which comprises of annual coupon interest and the face value at maturity.

    =-pv (rate, nper, pmt, fv)

    rate is required rate of return expected by investor of 10%

    nper is 5 years since the investor intends to hold the bond for 5 years

    pmt is the annual coupon interest=$1000*9%=$90

    fv is the face value of $1000

    =-pv (10%,5,90,1000) = $962.09

    The current price is $962
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
How did samuel slater's rhode island system change employment practices in mills?
Answers (1)
the total employment for metal sheet workers in 2006 is projected to be 201,000. if there is an increase of 6.3% from 2006 approximantley what is the total employment in 2006
Answers (1)
The fact that the price of diamonds is higher than the price of water: A. can be explained as the outcome of a consumer optimum in consumer choice theory. B. cannot be explained by behavioral economics or consumer choice theory. C.
Answers (1)
Last year, megan's salary was $65,000 while the consumer price index increased from 109 to 115. if megan received a cost-of-living adjustment, what would her salary be?
Answers (1)
During 2021, Jacobsen wrote off $19,300 in receivables and recovered $7,300 that had been written off in prior years. Jacobsen's December 31, 2020, allowance for uncollectible accounts was $46,500.
Answers (2)
New Questions in Business
A 30-year 6% callable corporate bond with a face value of $10,000 was issued in June of 2000. It is now June of 2015, the call protection has expired, and the bond can be immediately called at a call price of 102% of par.
Answers (1)
Demand-pull inflation occurs when the price of goods rises suddenly and extremely fast. consumers show an interest in purchasing more goods. producers need more money to make and distribute goods.
Answers (1)
Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%.
Answers (1)
Mallory hires Raghav to work for one year as an assistant manager at $5,500 per month, reserving the right to cancel the contract at any time. After two months, Mallory fires Raghav because the company's order volume drops.
Answers (1)
Which of the following terms best describes the cumulative value of net income or loss not taken out of the business? (A) Short-term capital. (B) Contributed capital. (C) Working capital. (D) earned capital.
Answers (1)
Home » Business » Consider a $1,000 par value bond with a 9% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%.
Sign Up Forgot Password?