# Bond Valuation

IBM 8% due in 5 years

Assume $1,000 Par or face amount

Assume exactly 5 years to maturity

Cash Flows:

0 $0

1 $40

2 $40

3 $40

4 $40

5 $40

6 $40

7 $40

8 $40

9 $40

10 $1,040

Current Market Interest rate for IBM 7.25%

Price of the bond (today) $1,030.99

What is the value of the IBM bond, given above, if market rates instantanously went to 8.5%?

Compare the IBM bond aboe versus a "zero coupon" bond with the same face value and same YTM. IF rates for both bonds went from the current rate to 5.8%, which would have a higher price change?

What is the rate of return earned for holding the zero coupon bond for 10 years?

https://brainmass.com/business/bond-valuation/bond-valuation-maturity-cash-flows-397329

#### Solution Preview

bond is semi-annually

n=10

pmt=40

annual rate is 8%

i=7.25/2

3.625

PV=1030.99

i=8.25/2

4.125

1.

using financial calculator

n=10

pmt=40

i=8.25/2 ...

#### Solution Summary

The expert examines bond valuations of maturity for cash flows.