Exploring Finance: Coupon Bonds. Coupon BondsConceptual Overview: Explore the value of fixed-interest coupon bonds of different terms.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 (rd) at which the bond (orange curve) is evaluated.3. What is the value of a 10-year 10% $1,000 bond when the market interest rate is 10%?$900$975$1,000$1,050 4. For a 10% $1,000 coupon bond, when the market interest rate is greater than 10%, the value of the bond:Is unaffected and still equals its par value of $1,000.Is less than its par value of $1,000.Is greater than its par value of $1,000.Cannot determine because it depends on the term of the bond in years. 5. For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is:less affected by changes in the market rate than a 1-year bond.affected the same by changes in the market rate than a 1-year bond.more affected by changes in the market rate than a 1-year bond.Cannot be determined. 2-1 2-1 (1-0.1007+ (1+0.100) = 1,000ΣΥΓ: INT +15-Year BondMarket Interest Rate (%)20Bond Value (5)2.0001.000.000500-1-Year Bond1010Yrs 1515

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Answered: What is the value of a 10-year 10%…

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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Exploring Finance: Coupon Bonds.

Coupon Bonds

Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms.

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.

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

$900
$975
$1,000
$1,050

4. For a 10% $1,000 coupon bond, when the market interest rate is greater than 10%, the value of the bond:

Is unaffected and still equals its par value of $1,000.
Is less than its par value of $1,000.
Is greater than its par value of $1,000.
Cannot determine because it depends on the term of the bond in years.

5. For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is:

less affected by changes in the market rate than a 1-year bond.
affected the same by changes in the market rate than a 1-year bond.
more affected by changes in the market rate than a 1-year bond.
Cannot be determined.

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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What is the value of a 10-year 10% $1,000 bond when the market interest rate is 10%? $900 $975 $1,000 $1,050

Exploring Finance: Coupon Bonds.

Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms.