Question

"An investor just purchased a 5-year $1,000 par value bond. The coupon rate on this bond...

"An investor just purchased a 5-year $1,000 par value bond. The coupon rate on this bond is 10% annually, with interest paid every year. If the investor expects to earn 12% simple rate of return, how much the investor should pay for it?"

Please explain the process thoroughly.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Information provided:

Par value= future value= $1,000

Time= 5 years

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100 per semi-annual period

Yield to maturity= 12%

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

PMT= 100

I/Y= 12

N= 5

Press the CPT key and PV to compute the present value.

The value obtained is 927.90.   

Therefore, the investor should price the bond at $927.90.

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
You have just purchased a 10-year, $1,000 par value bond. The coupon rate on this bond...
You have just purchased a 10-year, $1,000 par value bond. The coupon rate on this bond is 6%, with interest being paid semi-annually. If you expect a 5% rate of return on this bond, how much did you pay for it? Show calculations.
1. A $1,000 par value bond was just issued with a 30 year maturity and a...
1. A $1,000 par value bond was just issued with a 30 year maturity and a 6% coupon rate. If an investor has a required return of 8%, how much should they pay for this bond? Make sure to include 2 decimals in your answer. 2. A $1,000 par value bond was originally issued with a 30 year maturity and a 9% coupon rate. 8 years have passed since the bond was issued and the bond now has 22 years...
A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually....
A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 5%? 2. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 5%? 3.  A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What...
What is the value of a bond that has a par value of $1,000, a coupon...
What is the value of a bond that has a par value of $1,000, a coupon rate of 8.85 percent (paid annually), and that matures in 10 years? Assume a required rate of return on this bond is 9.02 percent. Fresh Water, Inc. sold an issue of 13-year $1,000 par value bonds to the public. The bonds have a 8.17 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Water, Inc. bonds is...
Your client, Pierre Batistuta has been offered a 10-year, $1,000 par value bond with a 8.8...
Your client, Pierre Batistuta has been offered a 10-year, $1,000 par value bond with a 8.8 percent coupon. Interest on this bond is paid semiannually. If Pierre is to earn a nominal rate of return of 10.8 percent, compounded semiannually, how much should he pay for the bond?
One year ago, an investor purchased a 10-year, $1,000 par value, 8% semiannual coupon bond with...
One year ago, an investor purchased a 10-year, $1,000 par value, 8% semiannual coupon bond with an 8% yield to maturity. Now, one year later, interest rates remain unchanged at 8%. If the investor sells the bond today (immediately after receiving the second coupon payment, and with no transaction costs), he will have: A. a capital gain of $80. B. a capital loss of $80. C. no capital gain or loss.
You are considering a 15-year, $1,000 par value bond. Its coupon rate is 10%, and interest...
You are considering a 15-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 7.03%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest cent.
You are considering a 15-year, $1,000 par value bond. Its coupon rate is 10%, and interest...
You are considering a 15-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 9.22%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest cent.
You are considering a 30-year, $1,000 par value bond. Its coupon rate is 10%, and interest...
You are considering a 30-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 7.3525%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent. $  
You are considering a 25-year, $1,000 par value bond. Its coupon rate is 10%, and interest...
You are considering a 25-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 11.3280%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT