5. Computer needed. Be sure to explain your reasoning (what determines price? What is the equation computer must solve?. No need to actually do the computing). a. Consider a one-period discount bond with a face value of $1000. The market interest rate on that class of bonds is 7%. Compute the bond price. b. Consider a three-year coupon bond that sells for $1,000 with a coupon rate of 5%. Compute the bond price if the market interest rate on that class of bonds is 6%. c. Congratulations, you have won the lottery grand prize of $20 million. You will receive $1 million per year for twenty years. What is the present value of this prize? d. Consider a government bond, known as a consol, that never matures: it pays annual coupons of $40 forever. If the yield to maturity on similar government bonds is 2.5%, what would be the price of a consol?
5. Computer needed. Be sure to explain your reasoning (what determines price? What is the equation computer must solve?. No need to actually do the computing). a. Consider a one-period discount bond with a face value of $1000. The market interest rate on that class of bonds is 7%. Compute the bond price. b. Consider a three-year coupon bond that sells for $1,000 with a coupon rate of 5%. Compute the bond price if the market interest rate on that class of bonds is 6%. c. Congratulations, you have won the lottery grand prize of $20 million. You will receive $1 million per year for twenty years. What is the present value of this prize? d. Consider a government bond, known as a consol, that never matures: it pays annual coupons of $40 forever. If the yield to maturity on similar government bonds is 2.5%, what would be the price of a consol?
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
Related questions
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Transcribed Image Text:5. Computer needed. Be sure to explain your reasoning (what determines price? What is
the equation computer must solve?. No need to actually do the computing).
a. Consider a one-period discount bond with a face value of $1000. The market
interest rate on that class of bonds is 7%. Compute the bond price.
b. Consider a three-year coupon bond that sells for $1,000 with a coupon rate of
5%. Compute the bond price if the market interest rate on that class of bonds is
6%.
c. Congratulations, you have won the lottery grand prize of $20 million. You will
receive $1 million per year for twenty years. What is the present value of this
prize?
d. Consider a government bond, known as a consol, that never matures: it pays
annual coupons of $40 forever. If the yield to maturity on similar government
bonds is 2.5%, what would be the price of a consol?
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