Two years ago (i.e., in November 2018), you purchased a newly-issued 30-year Treasury bond with a coupon rate of 3.25% (APR with semi-annual compounding). The face value of the bond is $10,000 and you purchased it at the face value. The bond pays semi-annual coupons each November and each May. The coupon payment for November 2020 has just been made and you expect to obtain the next coupon payment exactly six months from today in May 2021. The bond matures after exactly 28 years in November 2048. The current yield to maturity (i.e., in November 2020) on this bond is 1.60% (APR with semi-annual compounding) due to the recent rate declines by the Federal Reserve and due to the slowdown of the economy. What is the current price of this bond?

Two years ago (i.e., in November 2018), you purchased a newly-issued 30-year Treasury bond with a coupon rate of 3.25% (APR with semi-annual compounding). The face value of the bond is $10,000 and you purchased it at the face value. The bond pays semi-annual coupons each November and each May. The coupon payment for November 2020 has just been made and you expect to obtain the next coupon payment exactly six months from today in May 2021. The bond matures after exactly 28 years in November 2048. The current yield to maturity (i.e., in November 2020) on this bond is 1.60% (APR with semi-annual compounding) due to the recent rate declines by the Federal Reserve and due to the slowdown of the economy. What is the current price of this 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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Concept explainers

Debenture Valuation

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

Question

Two years ago (i.e., in November 2018), you purchased a newly-issued 30-year Treasury bond with a coupon rate of 3.25% (APR with semi-annual compounding). The face value of the bond is $10,000 and you purchased it at the face value. The bond pays semi-annual coupons each November and each May. The coupon payment for November 2020 has just been made and you expect to obtain the next coupon payment exactly six months from today in May 2021. The bond matures after exactly 28 years in November 2048.

The current yield to maturity (i.e., in November 2020) on this bond is 1.60% (APR with semi-annual compounding) due to the recent rate declines by the Federal Reserve and due to the slowdown of the economy. What is the current price of this bond?

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