Purchase Solution

Values of Bonds for given interest rates

Not what you're looking for?

Ask Custom Question

For this problem, consider a 6% coupon bond that matures in 20 years.

What would be the value of this bond if interest rates fall to 5% the day after it is purchased? If interest rates fell to 5% after one year, what would the bond be worth at that point?

Purchase this Solution
Solution Summary

This solution teaches you to calculate the value of bonds for given interest rates.

Solution Preview

Let Fv be the face value and Bv be the bond value, now the interest rate is 5%, the coupon rate is 6%, and the time is 20 years.

So by the ...

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

View More Free Quizzes
Related BrainMass Solutions

  • Short-term interest rates more volatile than long-term interest

    304339 Short-term interest rates more volatile than long-term interest "The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates.

  • Valuation - Present and Future Value

    What are some real or potential applications of these concepts? Why do bond values go down when interest rates go up? Is this true in the opposite direction?

  • Bonds, Short-Term and Long-Term Interest Rates and Volatility

    105184 Bonds, Short-Term and Long-Term Interest Rates and Volatility (6-2) The values of outstanding bonds change whenever the going rate of interest changes. In general, short term interest rates are more volatile than long term interest rate.

  • Bond Valuation comparison of a 1 year and a 15 year bond

    An explanation of why longer term bond prices vary more wen interest rates change than shorter term bonds is given.

  • Finance

    For identical coupon rates and a given absolute change in interest rates from the same base level, long-term bonds change proportionately more in price than short-term bonds. D.

  • Sharply Fallen Interest Rates

    par value Puts can generally be exercised only when designated events take place If interest rates decline significantly, the values of callable bonds will not rise by as much as those of bonds without the call provision.

  • Bond prices and interest rates: the relationship

    81376 Bond prices and interest rates: the relationship Discuss the relationship between interest rates and bond prices? When must the yield to maturity of a bond equal the current yield?

  • Leggio Corporation

    Today, the market interest rate on these bonds has dropped to 6%. What is the new price of the bonds, given that they now have 19 years to maturity? 7.

  • Value of outstanding bonds and rates of returns

    227650 Value of outstanding bonds and rates of returns 1 "The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates.

View More Related Solutions