A 7% bond matures in 10 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 9% rate of return? More than $1,000 Less than $1,000 $1,000 None of the above

A 7% bond matures in 10 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 9% rate of return? More than $1,000 Less than $1,000 $1,000 None of the above

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 8P

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Question

A 7% bond matures in 10 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 9% rate of return?
1. More than $1,000
2. Less than $1,000
3. $1,000
4. None of the above

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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