If the market rate is at 10%, How would a bond sell for if the following...

If the market rate is at 10%, How would a bond sell for if the following interest rates on the bond were presented? Bond 1 Interest rate of 13% Bond 2 Interest rate of 9.75% Bond 3 Interest rate of 10%

Expert Solution

Firstly, we should understand the basic concept that the market rate of interest and a bond's interest rate i.e. coupon rate is interrelated and will impact bond pricing.

Please remember the following rules:

If Coupon rate i.e. Bond Interest rate > Market Interest rate - the bond will sell at a premium because there will be a huge demand for it and the same will be visible in its market price.

If Coupon rate i.e. Bond Interest rate < Market Interest rate - the bond will sell at a discount because there will be less demand for the bond and the same will be visible in its market price. The reason for the same is higher return is available in the market why would they want to invest in bonds.

If Coupon rate i.e. Bond Interest rate = Market Interest rate - the bond will sell at a par value because the investor will be indifferent among both of them as both are offering same returns.

Thus, the answer would be:

Bond 1 Interest rate of 13% > market-rate - bond will sell at a premium

Bond 2 Interest rate of 9.75% < market-rate - bond will sell at a discount

Bond 3 Interest rate of 10% = market-rate - bond will sell at par

I am really trying my best to help you with my heart and all of my efforts - please do give a like if it was helpful for you :)

ekkarill92 answered 2 years ago

If the market rate of interest is 10%, a $9500, 11%, 10-year bond that pays interest...

If the market rate of interest is 10%, a $9500, 11%, 10-year bond that pays interest annually would sell at an amount less than face value. equal to face value. greater than face value. that cannot be determined.

Distinguish how a stated rate and the market rate of interest are calculated for a bond.

What would be the interest rate on a 10-year Treasury bond, given the following information? kpr...

What would be the interest rate on a 10-year Treasury bond, given the following information? kpr = 2% MR = 0.1% for a 1-year loan, increasing by 0.1% each additional year. LR = 0.5% DR= 0 for a 1-year loan, 0.1% for a 2-year loan, increasing by 0.1% for each additional year. Expected inflation rates: Year 1 = 3.0% Year 2 = 4.0% Year 3 and thereafter: 5.0% 6.7% 9.1% 7.7% 8.9%

1. How much would the price of a 10 year semi-annual 13% coupon rate bond be,...

1. How much would the price of a 10 year semi-annual 13% coupon rate bond be, if the market interest rate is 18%? How much would it be if the interest rate drops to 10%? At which interest rate level this bond will be sold for its par value?

a) If the interest rate decreases, how will it impact the market price of a bond?...

a) If the interest rate decreases, how will it impact the market price of a bond? b) Do long-term bonds have higher price risk than short-term bonds? Please illustrate your point by comparing the price change of two bonds of 1yr and 10yr maturity respectively due to interest rate changes. Assume both bonds have $1000 par and $100 annual coupon payment. show work

A company issues 800,000 of 10% bonds (the market rate for the bond is 9.75%) dated...

A company issues 800,000 of 10% bonds (the market rate for the bond is 9.75%) dated 6/1/16 which are due 6/1/26. interest is paid annually at 6/1. on 5/1/19 the company retired all of these bonds for 802,000 plus accrued interest. prepare journal entries from 2016 to 2019

Question

If the market rate is at 10%, How would a bond sell for if the following...

Solutions

Expert Solution

Related Solutions