Bond Price and Interest Rate
Not what you're looking for?
Consider two bonds A and B. The coupon rates are 10 percent and the face values are $1,000 for both bonds. Both bonds have annual coupons. Bond A has 20 years to maturity while bond B has 10 years of maturity.
a. What are the prices of the two bonds if the relevant market interest rate for both bonds is 10 percent?
b. If the market interest rate increases to 12 percent, what will be the prices of the two bond?
c. If the market interest rate decreases to 8 percent, what will be the prices of the two bonds?
Purchase this Solution
Solution Summary
Calculates bond price for different interest rates.
Solution Preview
Consider two bonds A and B. The coupon rates are 10 percent and the face values are $1,000 for both bonds. Both bonds have annual coupons. Bond A has 20 years to maturity while bond B has 10 years of maturity.
a. What are the prices of the two bonds if the relevant market interest rate for both bonds is 10 percent
b. If the market interest rate increases to 12 percent, what will be the prices of the two bond
c. If the market interest rate decreases to 8 percent, what will be the prices of the two bonds?
To calculate the price of the bond we need to calculate / read from tables the values of
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Price of bond= PVIF * Redemption value + PVIFA * interest payment per period
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIF( n, r%)= =1/(1+r%)^n
market interest rate = 10%
Price of bond A
Coupon rate= 10.000%
Face value= $1,000
Frequency= A Annual
No of years to maturity= 20
No of Periods= 20
Discount rate annually= 10.00% annual
Discount rate per period= 10.00%
n= 20 periods
r= 10.00% per period
Interest payment per period= $100 Annual
Redemption value= 1000
PVIF ...
Purchase this Solution
Free BrainMass Quizzes
Operations Management
This quiz tests a student's knowledge about Operations Management
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.