1) Assuming that the current interest rate is 3 percent, compute the present value of a 5-year,5 percent coupon bond with a face value of $1000. What happens when the interest rategoes to 4 percent?2). Which of these $100 face value one-year bonds will have the highest yield to maturity andwhy?a. A 6 percent coupon bond selling for $85.b. A 7 percent coupon bond selling for $100.

The current interest rate is 3%. The coupon rate is 5%. The face value of a bond is $1000. Number…

1) Assuming that the current interest rate is 3 percent, compute the present value of a 5-year, 5 percent coupon bond with a face value of $1000. What happens when the interest rate goes to 4 percent?

1) Assuming that the current interest rate is 3 percent, compute the present value of a 5-year, 5 percent coupon bond with a face value of $1000. What happens when the interest rate goes to 4 percent?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1) Assuming that the current interest rate is 3 percent, compute the present value of a 5-year,
5 percent coupon bond with a face value of $1000. What happens when the interest rate
goes to 4 percent?
2). Which of these $100 face value one-year bonds will have the highest yield to maturity and
why?
a. A 6 percent coupon bond selling for $85.
b. A 7 percent coupon bond selling for $100.

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