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A bond that matures in 10 years has a ​$1,000 par value. The annual coupon interest rate is 8 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 13 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually? Question content area bottom Part 1 a.  The value of this bond if it paid interest annually would be ​$enter your response here.

A bond that matures in 10 years has a ​$1,000 par value. The annual coupon interest rate is 8 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 13 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually? Question content area bottom Part 1 a.  The value of this bond if it paid interest annually would be ​$enter your response here.

Essentials Of Investments
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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Question
A bond that matures in
10
years has a
​$1,000
par value. The annual coupon interest rate is
8
percent and the​ market's required yield to maturity on a​ comparable-risk bond is
13
percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually?
 
 
 

Question content area bottom

Part 1
a.  The value of this bond if it paid interest annually would be
​$enter your response here.
 
Expert Solution
Step 1: Formula.

1.Present value of Interest payments is computed as follows:-

PV = A*open square brackets fraction numerator 1 minus left parenthesis 1 plus r right parenthesis to the power of negative n end exponent over denominator r end fraction close square brackets

where

PV = Present value of Interest payments

A = interest amount

r =  yield to maturity

n = time period


2. Present value of Maturity amount of bond is computed as follows:-

PV = A over left parenthesis 1 plus r right parenthesis to the power of n

where

PV =Present value of Maturity amount

A = Maturity amount

r =  yield to maturity

n = time period


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