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
Related questions
Question
Transcribed Image Text:**Bond Pricing Education**
**Objective:** Learn how to price a bond using given parameters.
**Bond Parameters:**
- **Par Value:** $1,000.00
- **Coupon Rate:** 8%
- **Years to Maturity:** 20 years
- **Yield to Maturity:** 5%
**Task:** Find the price of the bond listed in the table. Round your final answer to the nearest cent.
**Instructional Notes:**
- The **Par Value** is the face value of the bond.
- The **Coupon Rate** is the annual interest rate paid on the bond's face value.
- **Years to Maturity** indicates how long until the bond matures.
- **Yield to Maturity** is the total return anticipated on a bond if held until it matures.
Use these details to calculate the present value of future cash flows (coupon payments and par value) to determine the bond's price.
Transcribed Image Text:### Bond Valuation Table
This table provides key details for various bonds that are useful for assessing their valuations. The columns include important financial metrics:
- **Par Value**: The face value of the bond, or the amount returned to the bondholder at maturity.
- **Coupon Rate**: The annual interest rate paid by the bond as a percentage of the par value.
- **Years to Maturity**: The time remaining until the bond matures.
- **Yield to Maturity (YTM)**: The total return anticipated if the bond is held until it matures.
- **Price**: The current market price of the bond, which is missing and needs to be calculated.
#### Bonds Overview:
1. **Bond 1**
- Par Value: $1,000.00
- Coupon Rate: 8%
- Years to Maturity: 20
- Yield to Maturity: 5%
- Price: ?
2. **Bond 2**
- Par Value: $1,000.00
- Coupon Rate: 9%
- Years to Maturity: 15
- Yield to Maturity: 9%
- Price: ?
3. **Bond 3**
- Par Value: $5,000.00
- Coupon Rate: 5%
- Years to Maturity: 15
- Yield to Maturity: 6%
- Price: ?
4. **Bond 4**
- Par Value: $5,000.00
- Coupon Rate: 6%
- Years to Maturity: 5
- Yield to Maturity: 7%
- Price: ?
This table can help in understanding how different factors such as interest rates and time to maturity affect bond prices. To find the price of each bond, the present value of its future cash flows, including both interest payments and the repayment of par value, must be calculated using the yield to maturity as the discount rate.
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