Suppose you purchased a corporate bond with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. This means that you receive a $50 interest payment at the end of each six-month period for 10 years (20 times). Then, when the bond matures, you will receive the principal amount (the face value) in a lump sum. Three years after the bonds were purchased, the going rate of interest on new bonds fell to 6% (or 6% compounded semiannually). What is the current market value (P) of the bond (three years after its purchase)?

Suppose you purchased a corporate bond with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. This means that you receive a $50 interest payment at the end of each six-month period for 10 years (20 times). Then, when the bond matures, you will receive the principal amount (the face value) in a lump sum. Three years after the bonds were purchased, the going rate of interest on new bonds fell to 6% (or 6% compounded semiannually). What is the current market value (P) of the bond (three years after its purchase)?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 16P

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uppose you purchased a corporate bond with a10-year maturity, a $1,000 par value, a 10% couponrate, and semiannual interest payments. This meansthat you receive a $50 interest payment at the end ofeach six-month period for 10 years (20 times). Then,when the bond matures, you will receive the principalamount (the face value) in a lump sum. Three yearsafter the bonds were purchased, the going rate ofinterest on new bonds fell to 6% (or 6% compoundedsemiannually). What is the current market value (P)of the bond (three years after its purchase)?
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