1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%? $421 $708 $1,000 $1,519 2. What is the value of a 12-year 10% $1,000 bond when the market interest rate is 5%? $1,000 $1,050 $1,443 $2,200

1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%? $421 $708 $1,000 $1,519 2. What is the value of a 12-year 10% $1,000 bond when the market interest rate is 5%? $1,000 $1,050 $1,443 $2,200

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter5: The Cost Of Money (interest Rates)

Section: Chapter Questions

Problem 10PROB

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Question

1. Exploring Finance: Coupon Bonds.

This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (r_d) at which the bond (orange curve) is evaluated.

1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%?

$421
$708
$1,000
$1,519

2. What is the value of a 12-year 10% $1,000 bond when the market interest rate is 5%?

$1,000
$1,050
$1,443
$2,200

here is the reference,

2-1 2-1 (1-0.1007+ (1+0.100) = 1,000
ΣΥΓ: INT +
15-Year Bond
Market Interest Rate (%)
20
Bond Value (5)
2.000
1.000.000
500-
1-Year Bond
10
10
Yrs 15
15

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