What is the bond's price if comparable debt yields 12%? What is the current yields and yields to maturity?
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1. A bond has the following terms:
Principal amount $1,000
Semi-annual interest $50
Maturity 10 years
A. What is the bond's price if comparable debt yields 12%?
B. What is the current yields and yields to maturity?
C. What would be the bond's price if interest rates declined to 8%
D. What two generalizations may be drawn from the above price changes? In other words,
Explain the relationship in the above example between interest rates (at 12% vs 8%)
And the price of the bond.
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Solution Summary
The expert determines bond prices if comparable debt yields.
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1. A bond has the following terms:
Principal amount $1,000
Semi-annual interest $50
Maturity 10 years
A. What is the bond's price if comparable debt yields 12%?
FV = 1000
Payment per period = 50
Number of periods = 10*2 = 20
Return rate = 12%
Then use a financial calculator or EXCEL "=PV" commend, we can compute
Present value = 477.14, which is the bond's ...
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