3. Suppose you are considering purchasing a coupon bond with a coupon rate of 5 percent and a face value of $10,000 that matures in 5 years. (a) How much would you be willing to pay for this bond if the market interest rate is 10 percent?(B) Suppose you have just purchased the bond, and the market interest rate suddenly rises to 12 percent. What is the bond worth now? (c) Suppose that one year has elapsed, you have received the first coupon payment, and the market interest rate is still 12 percent. How much would another investor be willing to pay for your bond? If you sell your bond at this price, what would be your rate of return?
3. Suppose you are considering purchasing a coupon bond with a coupon rate of 5 percent and a face value of $10,000 that matures in 5 years. (a) How much would you be willing to pay for this bond if the market interest rate is 10 percent?(B) Suppose you have just purchased the bond, and the market interest rate suddenly rises to 12 percent. What is the bond worth now? (c) Suppose that one year has elapsed, you have received the first coupon payment, and the market interest rate is still 12 percent. How much would another investor be willing to pay for your bond? If you sell your bond at this price, what would be your rate of return?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:3. Suppose you are considering purchasing a coupon
bond with a coupon rate of 5 percent and a face value
of $10,000 that matures in 5 years. (a) How much
would you be willing to pay for this bond if the market
interest rate is 10 percent? (B) Suppose you have just
purchased the bond, and the market interest rate
suddenly rises to 12 percent. What is the bond worth
now? (c) Suppose that one year has elapsed, you have
received the first coupon payment, and the market
interest rate is still 12 percent. How much would
another investor be willing to pay for your bond? If you
sell your bond at this price, what would be your rate of
return?
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