Question

# 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 will need to know how much the bond will be worth at the end of 5 years.) Round your answer to the nearest cent.

 C D 4 Yield to maturity 15 5 coupon amount (PMT) = 9%*1000 90 6 Face value (FV) 1000 7 Yield rate 9.50% 8 9 Present value \$960.859125 OR PV 960.86 C D 15 Yield to maturity 5 16 coupon amount (PMT) = 9%*1000 90 17 Face value (FV) 960.859125 18 Yield rate 12.00% 19 20 Present value \$869.64713 WILLING PAY AT 869.65
 C D 4 Yield to maturity 15 5 coupon amount (PMT) = 9%*1000 90 6 Face value (FV) 1000 7 Yield rate 0.095 8 9 Present value =-PV(D7,D4,D5,D6) OR PV 960.86 C D 15 Yield to maturity 5 16 coupon amount (PMT) = 9%*1000 90 17 Face value (FV) 960.859125 18 Yield rate 0.12 19 20 Present value =-PV(D18,D15,D16,D17) WILLING PAY AT 869.65

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