How do investors calculate the net present value of a bond?If a bond's coupon payment is C, the interest rate is R, and the bond's coupon payment is made in each periodfor T years at which time the original principal, P, is repaid, then the bond's present discounted value (PDV) isCA. PDV =+(1 + R) (1 + R?(1 + R)TB. PDV = C(1 + R) + C(1 + R)2 -+ C(1 + R)T + P(1 + R)T+CPOC. PDV =- +R R2RTRTCD. PDV = P +CC(1 + R) (1+R)2(1 + R)TCE. PDV =++++(1 + R) (1+ R)2(1 + R)T (1 + R)TIf the interest rate is 9 percent, what is the present value of a perpetuity that pays $50,000 each year, forever?The perpetuity's value is $(Enter a numeric response rounded to two decimal places.)

In the given question we have two parts and we need to answer them one by one. In first part we…

How do investors calculate the net present value of a bond? If a bond's coupon payment is C, the interest rate is R, and the bond's coupon payment is made in each period for T years at which time the original principal, P, is repaid, then the bond's present discounted value (PDV) is C C A. PDV = (1 + R) (1+ R)2 (1 + R)T O B. PDV = C(1 + R) + C(1+ R)2 + . + C(1 + R)T + P(1 + R)T. ... C C OC. PDV = + P + + + R R2 RT O D. PDV =P+ + (1 + R) (1+ R)2 (1 + R)T C O E. PDV = - + + (1 + R) (1+ R² (1 + R)T (1 + R)T If the interest rate is 9 percent, what is the present value of a perpetuity that pays $50,000 each year, forever? The perpetuity's value is $ (Enter a numeric response rounded to two decimal places.)

How do investors calculate the net present value of a bond? If a bond's coupon payment is C, the interest rate is R, and the bond's coupon payment is made in each period for T years at which time the original principal, P, is repaid, then the bond's present discounted value (PDV) is C C A. PDV = (1 + R) (1+ R)2 (1 + R)T O B. PDV = C(1 + R) + C(1+ R)2 + . + C(1 + R)T + P(1 + R)T. ... C C OC. PDV = + P + + + R R2 RT O D. PDV =P+ + (1 + R) (1+ R)2 (1 + R)T C O E. PDV = - + + (1 + R) (1+ R² (1 + R)T (1 + R)T If the interest rate is 9 percent, what is the present value of a perpetuity that pays $50,000 each year, forever? The perpetuity's value is $ (Enter a numeric response rounded to two decimal places.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 3Q: The rate of return on a bond held to its maturity date is called the bonds yield to maturity. If...

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The value of any financial asset is the present ✓ value of the cash flows the asset is expected to produce. For a bond with fixed annual coupons, its value is equal to the present value of all its annual interest payments and its maturity value as shown in the equation below: Bond's value = VB: Int. Int. (1+ra)² (1+ra)² N + ·+...+ Int. M + (1+ra)* (1+ra) Int. M (1+ra) (1+ra)N + We could use the valuation equation shown above to solve for a bond's value; however, it is more efficient to use a financial calculator. Simply enter N as years to maturity, I/YR as the going annual interest rate, PMT as the annual coupon payment (calculated as the annual coupon interest rate times the face value of the bond), and FV as the stated maturity value. Once those inputs are entered in your financial calculator, you can solve for PV, the value of the bond. Remember that the signs for PMT and FV should be the same, so PV will have an opposite sign. Typically, you would enter PMT and FV as positive…
Unlike the coupon interest rate, which is fixed, a bond's yield varies from day to day depending on market conditions. To be most useful, it should give us an estimate of the rate of return an investor would earn if that investor purchased the bond today and held it for its remaining life. There are three different yield calculations: Current yield, yield to maturity, and yield to call. A bond's current yield is calculated as the annual interest payment divided by the current price. Unlike the yield to maturity or the yield to call, it does not represent the actual return that investors should expect because it does not account for the capital gain or loss that will be realized if the bond is held until it matures or is called. This yield was popular before calculators and computers came along because it was easy to calculate; however, because it can be misleading, the yield to maturity and yield to call are more relevant. The yield to maturity (YTM) is the rate of return earned on a…
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