Question

home / study / business / finance / finance questions and answers / ​(bond valuation​) you own a 15​-year, ​$1 comma 000 par value bond paying 6.5 percent ... Question: ​(Bond valuation​) You own a 15​-year, ​$1 comma 000 par value bond paying 6.5 percent interest a... ​(Bond valuation​) You own a 15​-year, ​$1 comma 000 par value bond paying 6.5 percent interest annually. The market price of the bond is ​$750​, and your required rate of return is 11 percent. a. Compute the​ bond's expected rate of return. b. Determine the value of the bond to​ you, given your required rate of return. c. Should you sell the bond or continue to own​ it? a. What is the expected rate of return of the 15​-year,$1,000 par value bond paying 6.5 percent interest annually if its market price is ​$750?

Answer 1

1-	expected rate of bond	Using rate function in MS excel =rate(nper,pmt,pv,fv,type)	nper =15 pmt =1000*6.5% =65 pv =-750 fv =1000 type =0	RATE(15,65,-750,1000,0)	9.74%
2-	Price of bond= Using present value function in MS excel	pv(rate,nper,pmt,fv,type)	rate =11% pmt =65 nper =15 fv =1000 type =0	PV(11%,15,65,1000,0)	($676.41)
3-	You would sale it because at required rate of return of 11% its current market price is 676.41 while it is trading at 750 so it is overvalued so it should be sold