John and Marsha are in an argument about an investment which requires a series of six annual deposits. If an investor decides to invest, he/she has to deposit $30,000 at the end of year 1, $30,000 at the end of year 2, $30,000 at the end of year 4, $30,000 at the end of year 5, $30,000 at the end of year 6 and $30,000 at the end of year 7. The deposited amounts grow at a rate of 5% p.a. The argument is about the nature of the cash flow stream of the six deposits – whether the cash flows are an annuity or a mixed stream. As per John’s opinion, the value of this investment at the end of year 7 will be $244,260.25 while Marsha thinks that the value of this investment at the end of year 7 will be $207,795.07. Is it true that on the date of maturity, a bond does not carry any interest rate risk? Briefly explain in no more than 150 words. Do not quote anybody
John and Marsha are in an argument about an investment which requires a series of six annual deposits.
If an investor decides to invest, he/she has to deposit $30,000 at the end of year 1, $30,000 at the end of year 2, $30,000 at the end of year 4, $30,000 at the end of year 5, $30,000 at the end of year 6 and $30,000 at the end of year 7. The deposited amounts grow at a rate of 5% p.a.
The argument is about the nature of the cash flow stream of the six deposits – whether the cash flows are an annuity or a mixed stream. As per John’s opinion, the value of this investment at the end of year 7 will be $244,260.25 while Marsha thinks that the value of this investment at the end of year 7 will be $207,795.07.
Is it true that on the date of maturity, a bond does not carry any interest rate risk? Briefly explain in no more than 150 words. Do not quote anybody.
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