ABC Company issued a $250,000 bond at the coupon rate of 2 percent payable semi-annually. Now, the bond has a remaining life of 4 years. i. Two years from now, you bought the ABC bond when the market interest rate for a new ABC bond is 4 percent. How much did you pay for the bond? ii. You sold the bond purchased in part i. after holding it for a year, when interest rates (for bonds of similar risk as ABC's bonds) fell to 3 percent. What is the percentage gain / loss on the bond? Illustrate your answer using the bond valuation equation.
ABC Company issued a $250,000 bond at the coupon rate of 2 percent payable semi-annually. Now, the bond has a remaining life of 4 years. i. Two years from now, you bought the ABC bond when the market interest rate for a new ABC bond is 4 percent. How much did you pay for the bond? ii. You sold the bond purchased in part i. after holding it for a year, when interest rates (for bonds of similar risk as ABC's bonds) fell to 3 percent. What is the percentage gain / loss on the bond? Illustrate your answer using the bond valuation equation.
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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ABC Company issued a $250,000 bond at the coupon rate of 2 percent payable semi-annually. Now, the bond has a remaining life of 4 years.
i. Two years from now, you bought the ABC bond when the market interest rate for a new ABC bond is 4 percent. How much did you pay for the bond?
ii. You sold the bond purchased in part i. after holding it for a year, when interest rates (for bonds of similar risk as ABC's bonds) fell to 3 percent. What is the percentage gain / loss on the bond? Illustrate your answer using the
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