Describe how you set up the calculations. Explain why the change in interest rates changed the price of the bond. You are considering writing a bond for 20 years and paying annual interest of 6% of the face ( par value) of $1,000. Interest rates are 6% when issued. What is the market value of this bond once you write it? Overnight the market rate for similar bonds falls to 5%. What is the new market value of the bond?

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
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Describe how you set up the calculations. Explain why the change in interest rates changed the price of
the bond. You are considering writing a bond for 20 years and paying annual interest of 6% of the face (
par value) of $1,000. Interest rates are 6% when issued. What is the market value of this bond once you
write it? Overnight the market rate for similar bonds falls to 5%. What is the new market value of the
bond?
Transcribed Image Text:Describe how you set up the calculations. Explain why the change in interest rates changed the price of the bond. You are considering writing a bond for 20 years and paying annual interest of 6% of the face ( par value) of $1,000. Interest rates are 6% when issued. What is the market value of this bond once you write it? Overnight the market rate for similar bonds falls to 5%. What is the new market value of the bond?
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