Find the value of a bond maturing in 10 years, with a $1,000 par value and a coupon interest rate of 9% (4.5% paid semiannually) if the required return on similar-risk bonds is 15% annual interest (7.5% paid semiannually).

Find the value of a bond maturing in 10 years, with a $1,000 par value and a coupon interest rate of 9% (4.5% paid semiannually) if the required return on similar-risk bonds is 15% annual interest (7.5% paid semiannually).

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 4MC

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Question

Find the value of a bond maturing in

years, with a

$1,000

par value and a coupon interest rate of

(4.5%

paid semiannually) if the required return on similar-risk bonds is

15%

annual interest

(7.5%

paid semiannually).

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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