Question

In: Finance

QUESTION 29 The direct transfer of funds ______. is very efficient increases the cost of obtaining...

QUESTION 29

  1. The direct transfer of funds ______.

    is very efficient

    increases the cost of obtaining funds

    is the best method to enhance economic growth

2 points   

QUESTION 30

  1. The price of a bond with a par value of $1,000, 5% coupon, 10 years to maturity and a 3% yield to maturity is about ______.

    $919.89

    $1000.00

    $1085.30

    $1,170.60

Solutions

Expert Solution

  • The Price of the Bond

  • The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
  • The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
  • Here, the calculation of the Bond Price using financial calculator is as follows

  		•

    Variables

    Financial Calculator Keys

    Figures

    Par Value/Face Value of the Bond [$1,000]

    FV

    1,000

    Coupon Amount [$1,000 x 5.00%]

    PMT

    50

    Market Interest Rate or Yield to maturity on the Bond [3.00%]

    1/Y

    3.00

    Maturity Period/Time to Maturity [10 Years]

    N

    10

    Bond Price/Current market price of the Bond

    PV

    ?

    Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,170.60.

    “Hence, the Price of the Bond will be $1,170.60

jeff jeffy answered 5 months ago
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