Q5 - PV Coupons: PMT = ($1,000*.06)/2 = $30.00; n = 10*2 =...

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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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