Purchase Solution

Bond Valuation and Nominal Rates

Not what you're looking for?

Ask Custom Question

Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $70 each six months and has 10 years to go before it matures. If you buy this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a nominal annual rate of 16%, but you expect the market to require a nominal rate of only 12% when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond?

a. 842.00
b. 1155.81
c. 1359.26
d. 966.99
e. 731.85

Purchase this Solution
Solution Summary

Bond price is determined.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Bond Valuation Problems

    117952 Bond Valuation Problems Bond Valuation - Chapter End Problems 6.8 (Yield to Call Ex): Six years ago, The Singleton Company sold a 20 -year bond issue with a 14 percent annual coupon rate and a 9 percent call premium.

  • Bond Valuation

    136934 Bonds, Bond Valuation, and Interest Rates Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments.

  • Finance: Coupon Rates

    Ex: coupon rate on the bond is still 10 percent, and the YTM is 8 percent. 2. Price and yield move in opposite directions; if interest rates rise, the price of the bond will fall.

  • Bond Valuation "Effective" Annual Interest Rate

    155104 Bond Valuation "effective" annual interest rate You are considering a 10-year, $1000 par value bond. Its coupon rate is 9%, and interest is paid semiannually.

  • After-tax nominal return

    200620 Bond Valuation The Stuart Corporation has excess cash to invest in one of two securities. The company's tax rate is 40 percent.

  • Interest Rates on Bonds

    1+2.50%) (1+1%) (1+ nominal rate) = (1.025 x 1.01) (1+ nominal rate) = 1.03525 nominal rate = 1.03525 - 1 = 3.525% The solution includes step by step explanations to calculate bond rates.

  • Corporate Bonds - Bond Analysis and Valuation

    6789 Corporate Bonds - Bond Analysis and Valuation Bond Analysis and Valuation Corporate Bonds - They Are More Complex Than you Think Jill Dougherty was hired as an investment analyst by A.M.

  • Real Versus Nominal Interest

    130085 Real Versus Nominal Interest Real versus Nominal Rates. You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8 percent.

  • Bond Valuation

    213056 Bond Valuation You wish to purchase a 20-year, $1,000 face balue bond that makes semiannual interest payments of $40. If you require a 10% nominal yield to maturity, what price should you be willing to pay for the bond?

View More Related Solutions