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2015 bought $1000 20 year 7% bond. if stayed the same what is the value in...

2015 bought $1000 20 year 7% bond. if stayed the same what is the value in 2020? show work & formula please

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Answer #1

Bond valuation is the determination of the fair price of a bond. As with any security or capital investment, the expected value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate.

If on the original date of purchase if the expected yield (assumed) on the bond was 7%, then the bond was purchased at par.

If after 10 years, expected yield remains the same at 7%, then the bond will continue to trade at par, as the present value of the future cash flows will give the value of par.

Hence we conclude that if originally bond was purchased at par, even after 10 years it will trade at par if the expected yield remains the same of 7%.

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