Question
In: Finance
23 A $1,000 par value bond was issued five years ago at a coupon rate of...
23
A $1,000 par value bond was issued five years ago at a coupon rate of 12 percent. It currently has 25 years remaining to maturity. Interest rates on similar debt obligations are now 14 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Compute the current price of the bond using
an assumption of semiannual payments. (Do not round
intermediate calculations and round your answer to 2 decimal
places.)
b. If Mr. Robinson initially bought the bond at
par value, what is his percentage capital gain or loss?
(Ignore any interest income received. Do not round
intermediate calculations and input the amount as a positive
percent rounded to 2 decimal places.)
c. Now assume Mrs. Pinson buys the bond at its
current market value and holds it to maturity, what will be her
percentage capital gain or loss? (Ignore any interest
income received. Do not round intermediate calculations and input
the amount as a positive percent rounded to 2 decimal
places.)
d. Why is the percentage gain larger than the
percentage loss when the same dollar amounts are involved in parts
b and c?
| The percentage gain is larger than the percentage loss because the investment is larger. | |
| The percentage gain is larger than the percentage loss because the investment is smaller. |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A $1,000 par value bond was issued five years ago at a coupon rate of 8...
A $1,000 par value bond was issued five years ago at a coupon
rate of 8 percent. It currently has 15 years remaining to maturity.
Interest rates on similar debt obligations are now 10 percent. Use
Appendix B and Appendix D for an approximate answer but calculate
your final answer using the formula and financial calculator
methods.
a. Compute the current price of the bond using
an assumption of semiannual payments. (Do not round
intermediate calculations and round your answer...
A $1,000 par value bond was issued five years ago at a coupon rate of 8...
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Interest rates on similar debt obligations are now 10 percent. Use
Appendix B and Appendix D for an approximate answer but calculate
your final answer using the formula and financial calculator
methods.
a. Compute the current price of the bond using
an assumption of semiannual payments. (Do not round
intermediate calculations and round your answer...
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Please show work!
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