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    Bond Valuation

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    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?

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    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.

    $2.19

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