/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q.15 Calculate the present value of a... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 4: Q.15 (page 134)

Calculate the present value of a $1,300 discount bond with seven years to maturity if the yield to maturity is 8%.

Short Answer

Expert verified

The present value of bond is $758.53

Step by step solution

01

Step 1. Introduction

A bond's present value is determined by discounting future cash payments by the current market interest rate.

02

Step 2. Explanation

The present value of bond is calculated as:

PV=FV(1+r)^n=1300(1+0.08)^7=758.53

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The U.S. Treasury issues some bonds as Treasury Inflation Indexed Securities, or TIIS, which are bonds adjusted for inflation; hence the yields can be roughly interpreted as real interest rates. Go to the St. Louis Federal Reserve FRED database, and find data on the following TIIS bonds and their nominal counterparts. Then answer the questions below.

  • 5-year U.S. Treasury (DGS5) and 5-year TIIS (DFII5)
  • 7-year U.S. Treasury (DGS7) and 7-year TIIS (DFII7)
  • 10-year U.S. Treasury (DGS10) and 10-year TIIS (DFII10)
  • 20-year U.S. Treasury (DGS20) and 20-year TIIS (DFII20)
  • 30-year U.S. Treasury (DGS30) and 30-year TIIS (DFII30)

a. Following the Great Recession of 2008鈥� 2009, the 5-, 7-, 10-, and even the 20-year TIIS yields became negative for a period of time. How is this possible?

b. Using the most recent data available, calculate the difference between the yields for each of the pairs of bonds (DGS5 鈥� DFII5, etc.) listed above. What does this difference represent?

c. Based on your answer to part (b), are there significant variations among the differences in the bond-pair yields? Interpret the magnitude of the variation in differences among the pairs.

What is the formula used to calculate the yield to maturity on a 20-year coupon bond with a current yield of 12% and \(1,000 face value that sells for \)2,500

Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the bond鈥檚 price?

Which \(10,000 bond has the higher yield to maturity, a 20-year bond selling for \)8,000 with a current yield of 20% or a 1-year bond selling for $8,000 with a current yield of 10%?

Retired persons often have much of their wealth placed in savings accounts and other interest-bearing investments and complain whenever interest rates are low. Do they have a valid complaint?
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.