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?
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
Problem 1PS
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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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