(a) What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

Question

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Answer 1

Question

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

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Answer 2

Question

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Expert Solution & Answer

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Answer 3

Question

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Expert Solution & Answer

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Answer 4

Question

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Expert Solution & Answer

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Answer 5

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Answer 6

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

Answer 7

Chapter 10.2, Problem 15P

To determine

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

Answer 8

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

Answer 9

To determine

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

Answer 10

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

Answer 11

To determine

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

Answer 12

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Answer 13

To determine

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Answer 14

Expert Solution & Answer

Answer 15

Expert Solution & Answer

Answer 16

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Answer 17

Ch. 10.1 - Prob. 1P Ch. 10.1 - Prob. 2P Ch. 10.1 - Prob. 3P Ch. 10.1 - Prob. 4P Ch. 10.1 - Prob. 5P Ch. 10.1 - Prob. 6P Ch. 10.1 - Prob. 7P Ch. 10.1 - Prob. 8P Ch. 10.1 - Prob. 9P Ch. 10.1 - Prob. 10P

(a) What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

Solution Summary: The author explains the relationship between the present value of a 1000 bond and the principal of the annuity.

Concept explainers

Videos

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Want to see the full answer?

Chapter 10 Solutions

(a) What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

Solution Summary: The author explains the relationship between the present value of a 1000 bond and the principal of the annuity.

Concept explainers

Videos

(a) What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

(b) What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

(c) If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

(d) If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?

Want to see the full answer?

Chapter 10 Solutions

(a)

What is the present value of a $1000 bond which pays $50 a year for 10 years, starting one year from now? Assume the interest rate is 5% per year, compounded annually.

(b)

What does your answer to part 15(a) tell you about the relationship between the principal and the present value of this bond if the interest rate is 5%?

(c)

If the interest rate is more than 5% per year, compounded annually, which is larger: which is larger; the principal or the present value of the bond? Why is the bond then described as trading at a discount ?

(d)

If the interest rate is less than 5% per year, compounded annually, Why is the bond then described as trading at a premium ?