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BreanneChaney_Unit5Assignment

# BreanneChaney_Unit5Assignment - Face Value plus the PV of...

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You purchased a \$1,000 five percent coupon bond that matures in 10 years. How much would your bond be worth if interest rates fall to 4% the day after you purchase the bond? What would the bond be worth in one year if interest rates fell to 4% at that point? The price of the bond equals the (Present Value) PV of all future cash flows. This includes the PV of the

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Unformatted text preview: Face Value plus the PV of all Coupon Payments discounted at the market interest rate (Yield to Maturity – YTM) Coupon Payment = \$1,000 × 5% = \$50 If interest rates fall to 4% the day after you purchase the bond = = \$405.545 + \$675.564 = \$1,081.11 If interest rates fell to 4% one year after I purchased the bond: = = \$371.767 + \$702.587 = \$1,074.35...
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BreanneChaney_Unit5Assignment - Face Value plus the PV of...

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