The government issued a 15 year bond offering an interest rate of 12 per cent 10 years ago. Since then interest rates have fallen sharply. The bond now has five years to run to maturity and the government has just issued a five year bond offering an interest rate of 6 per cent. Determine a value for the bond that has five years to run to maturity, assume the bond has a face value of £100 and interest is paid annually. Explain your answer.
The government issued a 15 year bond offering an interest rate of 12 per cent 10 years ago. Since then interest rates have fallen sharply. The bond now has five years to run to maturity and the government has just issued a five year bond offering an interest rate of 6 per cent. Determine a value for the bond that has five years to run to maturity, assume the bond has a face value of £100 and interest is paid annually. Explain your answer.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 11P
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The government issued a 15 year bond offering an interest rate of 12 per cent 10 years ago. Since then interest rates have fallen sharply. The bond now has five years to run to maturity and the government has just issued a five year bond offering an interest rate of 6 per cent. Determine a
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