Question

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 11%; 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%. 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.

Answer #1

Par value of Bond = 1000

Number of Years of maturity = 15

YTM is 9%

Coupon =9%*1000 = 90

We need to find price of this 15 year bond = PV of Coupons + PV of
Par Value =90*(1-(1+9%)^{-15} )/9% +
1000/(1+9%)^{15} = 1000

Sales value of Bond after 5 years of purchase = 1000

YTM = 12%

Current price of Bond X = PV of coupons + PV of Market value of
bond after 5 years = 90*(1-(1+12%)^{-5} )/12% +
1000/(1+12%)^{5} = 891.86

Please Discuss in case of Doubt

Best of Luck. God Bless

Please Rate Well

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 9% 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 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 9% 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 11%. 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 $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 12%. 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 $1,000 par value. Your required return on Bond X is
11%; 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 12%. 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, 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 $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 9%. 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 $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...

Bond X is noncallable and has 20 years to maturity, a 11% 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 need to...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 42 seconds ago

asked 6 minutes ago

asked 7 minutes ago

asked 18 minutes ago

asked 36 minutes ago

asked 37 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago