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    Determining The Fair Value of A Bond

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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 need calculations in excel

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    Solution Preview

    I have solved the problem using the PV function in Excel. The purchaser of a bond purchases two income streams: the periodic interest payment (in this case, $50 per year) and the terminal face value payment (in this case, $1,000). Therefore, ...

    Solution Summary

    Using an Excel spreadsheet, this solution demonstrates and explains how to compute the fair value of a bond when the prevailing interest rate differs from the bond's coupon rate.