During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for $60,000. What rate of return per year will a purchaser make if the bond coupon rate is 14% per year, payable annually, and the bond is due 5 years from now? Write the ROR equation and use a single-cell spreadsheet function to display the correct answer directly.
During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for $60,000. What rate of return per year will a purchaser make if the bond coupon rate is 14% per year, payable annually, and the bond is due 5 years from now? Write the ROR equation and use a single-cell spreadsheet function to display the correct answer directly.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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During recessionary periods, bonds that were issued
many years ago have a higher coupon rate than currently issued bonds. Therefore, they may
sell at a premium, a price higher than their face
value, because of currently low coupon rates. A
$50,000 bond that was issued 15 years ago is for
sale for $60,000. What
a purchaser make if the bond coupon rate is 14%
per year, payable annually, and the bond is due 5
years from now? Write the ROR equation and use
a single-cell spreadsheet function to display the
correct answer directly.
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