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KIC000066 - Computing the Current Price of A Bond With...

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Unformatted text preview: Computing the Current Price of A Bond With Semiannual Coupons A2—year bond has a par value of $1,000 and a semiannual coupon rate of 5 percent. The prevailing annualized yield on other bonds with similar characteristics is 7 percent. What is the appropriate market price of the bond? Calculator: FV=1000 PMTE 25 W= 3.5 N=4 OPTPV——— Ci: + C12 + C12+Par (Hi/21‘ (la-Hz)2 ""(l+ki2)"‘ 25 25 + 75 +1,025 Loss2 Loss’ 1.035‘ I’Vofbond: Relationship between Coupon Rate. Requiredfietum, and Price I If the coupon rate of a bond is below the investor's required rate of return, the present valfiof the bond should be below par value —— I if the coupon rate equals the required rate of return. the price of the bond should be equal to par value I If the rtgupon rafite ‘of a band is ab???I the requi rate 0 re urn, e pn o e bond should be above par value—@— Bond Values I A bond you are interested in pays an annual coupon of 4 percent, has a yield to maturity of 6 percent and has 13 years to maturity. If interest rates remain unchanged, It what price would you expect this bond to be selling now. 8 years from now? Ten years from now? ...
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