Consider the coupon bond issued by XYZinc Term:3years Payment:175 Facevalue:500 Currently the prevailing risk free rate is 0.03 and the market places a risk premium on XYZ inc bonds of 0.01. suppose the risk free rate decreases by 0.03.compute the change in the bond price.

Consider the coupon bond issued by XYZinc Term:3years Payment:175 Facevalue:500 Currently the prevailing risk free rate is 0.03 and the market places a risk premium on XYZ inc bonds of 0.01. suppose the risk free rate decreases by 0.03.compute the change in the bond price.

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter14: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 7DTM

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Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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