You will receive $70 interest every six months from your investment in a corporate bond. The bond will mature in eightyears from now and has a face value of $1,000. This means that if you hold the bond until its maturity, you will continue to receive $70 interest semiannually and $1,000 face value at the end of eight years. a. What is the present value of the bond in the absence of inflation if the market interest rate is 9%? . The present value of the bond in the absence of inflation is $ 1289 (Round to the nearest dollar.) b. What would happen to the value of the bond if the inflation rate over the next eight years is expected to be %5? If the inflation rate over the next eight years is expected to be 5%, the present value of the bond will be $ 1700 (Round to the nearest dollar.)
You will receive $70 interest every six months from your investment in a corporate bond. The bond will mature in eightyears from now and has a face value of $1,000. This means that if you hold the bond until its maturity, you will continue to receive $70 interest semiannually and $1,000 face value at the end of eight years. a. What is the present value of the bond in the absence of inflation if the market interest rate is 9%? . The present value of the bond in the absence of inflation is $ 1289 (Round to the nearest dollar.) b. What would happen to the value of the bond if the inflation rate over the next eight years is expected to be %5? If the inflation rate over the next eight years is expected to be 5%, the present value of the bond will be $ 1700 (Round to the nearest dollar.)
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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Transcribed Image Text:QUESTION 6
You will receive $70 interest every six months from your investment in a corporate bond. The bond will mature in eightyears from now and has face value of $1,000. This means that if you hold the bond
until its maturity, you will continue to receive $70 interest semiannually and $1,000 face value at the end of eight years.
a. What is the present value of the bond in the absence of inflation if the market interest rate is 9%?
• The present value of the bond in the absence of inflation is $ 1289
(Round to the nearest dollar.)
b. What would happen to the value of the bond if the inflation rate over the next eight years is expected to be %5?
If the inflation rate over the next eight years is expected to be 5%, the present value of the bond will be $ 1700
(Round to the nearest dollar.)
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