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Estimating Present Value of a Bond

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Question: Calculate the present value of a bond that pays a coupon rate of 7% per year for 20 years, and matures in 20 years at its face value of $1000, using each of the following current market interest rates at the discount rates of:(a) 5%; (b) 7%; (c) 9%. Show your calculations.

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Solution Summary

In an organized and step-wise manner this solution describes the steps required to calculate the present value of a bond at various discount rates. All calculations have been provided.

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Annual Coupon amount=C=1000*7%=$70
Number of coupon payments=n=20
Maturity amount=Face Value=M=$1000

a) Discount rate=r=5%
Present value of ...

Solution provided by:
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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