Investment in a Bond You invest in a 10-year $10,000 bond that pays interest at an annual rate 7% every 6 months for 10 years. The market rate (yield), i.e., what you will earn on the bond is 5%. Thus, you will receive the maturity value of $10,000 at the end of 10 years, and interest payments every 6 months of $350 (10,000 x 7% x 6/12). Requited: Calculate the issue price of the bond - the amount you will invest today to purchase this bond. Cash Flow Maturity Value Interest Payment Issue Price Required: Six Month Period Amount Beginning Balance 10,000 350 Prepare an investment schedule for the first two months. Investment Schedule Present Value Factor Appropriate Interest Rate Interest earned Interest Received Present Value Ending balance
Investment in a Bond You invest in a 10-year $10,000 bond that pays interest at an annual rate 7% every 6 months for 10 years. The market rate (yield), i.e., what you will earn on the bond is 5%. Thus, you will receive the maturity value of $10,000 at the end of 10 years, and interest payments every 6 months of $350 (10,000 x 7% x 6/12). Requited: Calculate the issue price of the bond - the amount you will invest today to purchase this bond. Cash Flow Maturity Value Interest Payment Issue Price Required: Six Month Period Amount Beginning Balance 10,000 350 Prepare an investment schedule for the first two months. Investment Schedule Present Value Factor Appropriate Interest Rate Interest earned Interest Received Present Value Ending balance
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Investment in a Bond
You invest in a 10-year $10,000 bond that pays interest at an annual rate 7% every 6 months for 10 years. The market
rate (yield), i.e., what you will earn on the bond is 5%. Thus, you will receive the maturity value of $10,000 at the end
of 10 years, and interest payments every 6 months of $350 (10,000 x 7% x 6/12).
Requited:
Calculate the issue price of the bond - the amount you will invest today to purchase this bond.
Cash Flow
Maturity Value
Interest Payment
Issue Price
Required:
Six Month
Period
N
Amount
Beginning
Balance
10,000
350
Prepare an investment schedule for the first two months.
Investment Schedule
Present Value
Factor
Appropriate
Interest
Rate
Interest earned
Interest
Received
Present Value
Ending balance
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