Question

Rob buys a 30-year coupon bond with a $250,000 face value at a time when the interest (coupon) rate is 5%. In just under 5 years (so just before the 3rd coupon payment) he sells the bond to a neighbour. At that time the interest rate is 3%. How much is the bond’s approximate (within $1000) competitive value at the time of sale?

Question 2 options:

	343,565
	345,565
	347,565
	349,565
	None of the above

Answer 1

	Answer:
	Caculation of Value of Bond
	Value of Bond = Present value of Future cash inflows
	After there will be 28 coupon payment and redemption value
	Coupon payment = $ 250000 *5% = $ 12500
	Period	Cash inflows	PVF@ 3%	Present Value
	1-28	$         12,500	18.745	$            234,315
	28	$       250,000	0.437	$            109,250
	Present value of Future cash Inflows			$            343,565
	Value of Bond = $ 343,565
	The Option "A" is Correct