BOND MATH 1-(1+r)-n F BondPrice = C* + r (1+r)n Calculates Present Value of Calculates Present Value of coupon payments stream repayment at maturity ▸ Where ▸ C is the periodic coupon payment ▸r is the yield to maturity, or the current market return from an investment with similar risk ▸n is the number of periods until maturity ▸ F is the face value Family Finance Mom
BOND MATH 1-(1+r)-n F BondPrice = C* + r (1+r)n Calculates Present Value of Calculates Present Value of coupon payments stream repayment at maturity ▸ Where ▸ C is the periodic coupon payment ▸r is the yield to maturity, or the current market return from an investment with similar risk ▸n is the number of periods until maturity ▸ F is the face value Family Finance Mom
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
Question
Robert Campbell and Carol Morris are senior vice-presidents of the Mutual of Chicago Insurance Company. They are co-directors of the company’s pension fund management division, with Campbell having responsibility for fixed income securities (primarily bonds) and Morris being responsible for equity investments. A major new client, the California League of Cities, has requested that Mutual of Chicago present an investment seminar to the mayors of the represented cities. Campbell and Morris, who will make the actual presentation, have asked you to help them by answering the following questions.
Question:
- What is the value of a 1-year, $1,000 par value bond with a 10% annual coupon if its required
rate of return is 10%? What is the value of a similar 10-year bond?
Transcribed Image Text:BOND MATH
1-(1+r)-n
F
BondPrice = C*
+
r
(1+r)n
Calculates Present Value of
Calculates Present Value of
coupon payments stream
repayment at maturity
▸ Where
▸ C is the periodic coupon payment
▸r is the yield to maturity, or the current market
return from an investment with similar risk
▸n is the number of periods until maturity
▸ F is the face value
Family Finance Mom
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