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# Q5 - PV Coupons PMT =(\$1,000.06/2 = \$30.00 n = 10*2 = 20 i...

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FIN 301 Spring 2011 Quiz Five NAME _________________________________________________________________ Financial investments are valued at the present value of the expected future cash flows - Maureen Breen Quackle issued 10-year, semi-annual, 6% bonds 3 years ago when market rates were 7%. Market rates have since increased and are 10% today. Quackle announced today that they will call the bonds in 2 1/2 years at 106.25. What would you have paid for a bond if you had bought it the day it was issued?
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Unformatted text preview: PV Coupons: PMT = (\$1,000*.06)/2 = \$30.00; n = 10*2 = 20; i = 7%/2 = 3.5% PVA = \$426.37 PV of Face Value: FV = \$1,000; n=20; i=3.5% PV = \$502.57 Bond Value = PVA + PV = \$928.94 What would you sell a bond for if you sold it today? PV Coupons: PMT = (\$1,000*.06)/2 = \$30.00; n = 2.5*2 = 5; i = 10%/2 = 5% PVA = \$129.88 PV of Face Value: FV = \$1,000*1.0625 = \$1062.50; n=5; i=5% PV = \$832.50 Bond Value = PVA + PV = \$962.38...
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