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MGEA06H3 Lecture Notes - Maryland Route 34, Money Market

94 views3 pages
bluetiger347
16 Jun 2013
School
UTSC
Department
Economics for Management Studies
Course
MGEA06H3
Professor
Iris Au

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MGEA06H3 Full Course Notes
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MGEA06H3 Full Course Notes
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If you have today, after 4 years you will have: If you are promised in 8 years, then the value of promise today, : Part (a: this is a standard bone with a face value of , a coupon rate of 12% and matures in 3 years. If the current interest rate is 12%, the price of the bond is: n. = : since the current interest rate is the same as the coupon rate, the bond will sell at par (i. e. , at its face value). If the current interest rate is 10%, the price of the bond is: n. = . 97: since the current interest rate is less than the coupon rate, the bond will sell at a premium (i. e. , above its face value). If the current interest rate is 15%, the price of the bond is: n.

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Related Questions

A 30-year bond has a face value of $1,000 and a coupon rate of 6%, interest payments are paid semiannually. If the maturity from now is equally years and the current market rate for the same bond is10% per year, compounded semiannually. How much is the bond worth?________

What if the current market rate dropped 3 % today. How much would the bond be worth today? _____

What if the current market rate increased by 3 % today. How much would the bond be worth today? _____

A 30-year bond has a face value of $1,000 and a coupon rate of 6%, interest payments are paid semiannually. If the maturity from now is equally years and the current market rate for the same bond is10% per year, compound semiannually. How much is the bond worth?________

What if the current market rate dropped 3 % today. How much would the bond be worth today? _____

What if the current market rate increased by 3 % today. How much would the bond be worth today? _____

2. The Apple company issues a coupon bond with the face value $1000, the coupon rate 7% and the maturity 10 years.
(1) If the interest rate is assumed to be fixed at 8%, what is the present value of the bond?
(2) Instead, people expect that the interest rate will be fixed at 8% until the end of the 5th year (immediately after the 5th coupon payment) and will either jump to 10% or fall to 5% afterwards with equal chances. Calculate the present value of the bond. Hint: Find the value at the end of the 5th year and then the present value.