Question

ACCOUNTING EASY - Explain how the market price of a bond is determined. Someone told you...

ACCOUNTING EASY - Explain how the market price of a bond is determined. Someone told you that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is he right? Explain with good detail and clarity

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

Market price of bond is determined by discounting periodic interest payment and principal payment at maturity at market rate of interest.

The statement given in question is not correct that market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond.

For calculating market price of bond, present value of interest and principal payment is determined by discounting interest and principal at market rate of interest. Present value of interest and principal payment is considered to be market price of bond.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Explain how the market price of a bond is determined. Someone told you that the market...
Explain how the market price of a bond is determined. Someone told you that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is she/he right?
Having determined how to calculate the value of a bond (Bond Price) and the effective rate...
Having determined how to calculate the value of a bond (Bond Price) and the effective rate of return of bond (i) you should now be able to derive or explain some key bond relationships. P = C [1 - 1/(1+i)n]/i   + M/(1+i)n Using the above bond formula, your reading assignments and/or basic logic, answer each of the following bond relationship questions in a brief one paragraph posting. 1.   Explain what bond market condition would result the market price of a...
Explain how the derivative market determined the future price of an assets
Explain how the derivative market determined the future price of an assets
Consider a competitive market for a good where the demand curve is determined by: the demand...
Consider a competitive market for a good where the demand curve is determined by: the demand function: P = 5+-1*Qd and the supply curve is determined by the supply function: P = 0.5*Qs. Where P stands for Price, QD is quantity demanded and QS is quantity supplied. What is the quantity demanded of the good when the price level is P = $4? Additionally assume a market intervention of the form of per unit $2 tax on the consumption of...
A 10-year annual payment corporate bond has a market price of $1,050. It pays annual interest...
A 10-year annual payment corporate bond has a market price of $1,050. It pays annual interest of $100 and its required rate of return is 9 percent. Is the bond fairly priced, underpriced, or overpriced? Also find the magnitude of the mispricing (if any). please explain how you get all the numbers in excel would be good
You bought a 5-year annual payment corporate bond with a market price of $1000. The bond...
You bought a 5-year annual payment corporate bond with a market price of $1000. The bond pays annual interest of $100, by how much your bond is mispriced if The required rate of return on your investment is 10%? The required rate of return on your investment is 12%?
You buy a bond with a face value of $100 at a price of 99.15. It...
You buy a bond with a face value of $100 at a price of 99.15. It has a YTM of 3.4% and a three-year maturity. Semiannual coupon payment. The second to the last coupon on the bond is worth $1.3145 at the end of your holding period. How much of the holding period return comes from coupons, how much comes from the reinvestment of coupons, how much comes from capital gains or losses and how much is due to the...
You are purchasing a 20-year, semi-annual bond with a current market price of $973.64. If the...
You are purchasing a 20-year, semi-annual bond with a current market price of $973.64. If the yield to maturity is 8.68 percent and the face value is $1,000, what must the coupon payment be on the bond? 2.Collingwood Homes has a bond issue outstanding that pays an 8.5 percent coupon and has a yield to maturity of 9.16%. The bonds have a par value of $1,000 and a market price of $944.30. Interest is paid semiannually. How many years until...
Suppose that in June 2020 you are considering buying a UK government bond with £1,000 face...
Suppose that in June 2020 you are considering buying a UK government bond with £1,000 face value, 5% coupon rate and maturity in June 2026. What should be a fair price of this bond if, in June 2020, other medium-term UK government bonds offered a return of about 4%.Support your answer with appropriate calculation and clearly state any assumptions you made. ii) Explain how your answer to part (i) would change, if you were told that most market participants are...
Question 4 a. Explain own price, cross price and income elasticities of demand and how they...
Question 4 a. Explain own price, cross price and income elasticities of demand and how they are measured. b. Suppose the demand function facing a company manufacturing a particular product (X) is given by Qx = 62 -2Px + 0.2M + 25A Where: Px is the price of the product M is the consumer income, and A is the amount of advertising expenditure. If Px is 4, M is 150 and A is 4 You are required to calculate: i....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT