Question

Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a...

Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 12%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent.

Homework Answers

Answer #1

Par value of Bond = 1000
Number of Years of maturity = 15
YTM is 10.5%
Coupon =8%*1000 = 80
We need to find price of this 15 year bond = PV of Coupons + PV of Par Value =80*(1-(1+10.5%)-15 )/10.5% + 1000/(1+10.5%)15 = 815.15

Sales value of Bond after 5 years of purchase = 815.15
YTM = 12%
Current price of Bond X = PV of coupons + PV of Market value of bond after 5 years = 80*(1-(1+12%)-5 )/12% + 815.15/(1+12%)5 = 750.92

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
Bond X is noncallable and has 20 years to maturity, a 9% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 9% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 6.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 12%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 8.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 8%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 8%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
(Bond Valuation) Bond X is noncallable and has 20 years to maturity, an 8% annual coupon,...
(Bond Valuation) Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 7.5%. How much should you be willing to pay for Bond X today? (Hint: You will...
Bond valuation Bond X is noncallable and has 20 years to maturity, a 9% annual coupon,...
Bond valuation Bond X is noncallable and has 20 years to maturity, a 9% annual coupon, and a $1,000 par value. Your required return on Bond X is 12%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yield to maturity on a 15-year bond with similar risk will be 9.5%. How much should you be willing to pay for Bond X today? (Hint: You...
Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a $1,000 par value. Your required return on Bond X is 8%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10%. How much should you be willing to pay for Bond X today? (Hint: You will need to...
Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a...
Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 8.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to...