Question
In: Finance
1) A 10-year corporate bond has a coupon rate of 6% with annual payments. If interest...
1) A 10-year corporate bond has a coupon rate of 6% with annual
payments. If interest rates rise to 7% on similar bonds then what
is the value of the bond in the marketplace?
2) A 10-year corporate bond has a coupon rate of 6% with annual
payments. If interest rates rise to 5% on similar bonds then what
is the value of the bond in the marketplace?
Solutions
Expert Solution
| 1) | Value of a bond is the present value of cash flow from bond which is calculated as follows: | |||||||||
| Value of bond | = | =-pv(rate,nper,pmt,fv) | Where, | |||||||
| = | $ 929.76 | pv | = | ? | ||||||
| rate | = | 7% | ||||||||
| nper | = | 10 | ||||||||
| pmt | = | $ 60 | ||||||||
| fv | $ 1,000 | |||||||||
| 2) | Value of a bond is the present value of cash flow from bond which is calculated as follows: | |||||||||
| Value of bond | = | =-pv(rate,nper,pmt,fv) | Where, | |||||||
| = | $ 1,077.22 | pv | = | ? | ||||||
| rate | = | 5% | ||||||||
| nper | = | 10 | ||||||||
| pmt | = | $ 60 | ||||||||
| fv | $ 1,000 | |||||||||
jeff jeffy answered 1 hour agoRelated Solutions
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