(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A-a bond with 5 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond B-a bond with 9 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond C-a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 12 percent per year compounded semiannually? b. 5 percent per year compounded semiannually? c. 16 percent per year compounded semiannually? d. What observations can you make about these results? a. If the market discount rate were 12 percent per year compounded semiannually, the value of BondA is $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond Bis $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond C is $ 1,000. (Round to the nearest cent.) b. If the market discount rate were 5 percent per year compounded semiannually, the value of Bond A is S (Round to the nearest cent.)
(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A-a bond with 5 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond B-a bond with 9 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond C-a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 12 percent per year compounded semiannually? b. 5 percent per year compounded semiannually? c. 16 percent per year compounded semiannually? d. What observations can you make about these results? a. If the market discount rate were 12 percent per year compounded semiannually, the value of BondA is $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond Bis $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond C is $ 1,000. (Round to the nearest cent.) b. If the market discount rate were 5 percent per year compounded semiannually, the value of Bond A is S (Round to the nearest cent.)
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
100%
On a Financial Calculator
N=10,IY=6,PMT=25,FV=1,000 PV =1000
5X2=10
12/2=6%
1,000X0.05X0.5=25
What am I doping wrong?
Transcribed Image Text:(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are
Bond A-a bond with 5 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
Bond B-a bond with 9 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
Bond C-a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
What would be the value of these bonds if the market discount rate were
a. 12 percent per year compounded semiannually?
b. 5 percent per year compounded semiannually?
c. 16 percent per year compounded semiannually?
d. What observations can you make about these results?
a. If the market discount rate were 12 percent per year compounded semiannually, the value of Bond A is $ 1,000. (Round to the nearest cent.)
If the market discount rate were 12 percent per year compounded semiannually, the value of Bond B is $ 1,000 . (Round to the nearest cent.)
If the market discount rate were 12 percent per year compounded semiannually, the value of Bond C is $ 1,000. (Round to the nearest cent.)
b. If the market discount rate were 5 percent per year compounded semiannually, the value of Bond A is S. (Round to the nearest cent.)
Expert Solution
Step 1
Value of a bond:
Value of a bond is the present value of the future cash flows discounted at a required rate of return. Future cash flows include coupon amount and face value of the bond.
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