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A 40-year maturity bond has a 9% coupon rate, paid annually. It sells today for $1,057.42....

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Finance

A 40-year maturity bond has a 9% coupon rate, paid annually. Itsells today for $1,057.42. A 30-year maturity bond has a 8.5%coupon rate, also paid annually. It sells today for $1,069.5. Abond market analyst forecasts that in five years, 35-year maturitybonds will sell at yields to maturity of 10% and that 25-yearmaturity bonds will sell at yields of 9.5%. Because the yield curveis upward-sloping, the analyst believes that coupons will beinvested in short-term securities at a rate of 8%.

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3.8 Ratings (722 Votes)
Part 1 Step 1 Calculate Price of Bond with 35 Years to Maturity The price of the bond can be calculated with the use of PV Present Value functionformula of EXCELFinancial Calculator The functionformula for PV is PVRateNperPMTFV where Rate Interest Rate here Yield to Maturity Nper Period PMT Payment here Coupon Payment and FV Future Value here Face Value of Bonds Here Rate 10 Nper 35 PMT 10009 90 and FV 1000 Using these values in the above functionformula for PV we get Price of Bond with 35 Years to Maturity PV1035901000 90356 Step 2 Calculate Future Value of Coupon Payments at 8 Interest Rate for 5 Years The future value of coupon payments can be    See Answer
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A 40-year maturity bond has a 9% coupon rate, paid annually. Itsells today for $1,057.42. A 30-year maturity bond has a 8.5%coupon rate, also paid annually. It sells today for $1,069.5. Abond market analyst forecasts that in five years, 35-year maturitybonds will sell at yields to maturity of 10% and that 25-yearmaturity bonds will sell at yields of 9.5%. Because the yield curveis upward-sloping, the analyst believes that coupons will beinvested in short-term securities at a rate of 8%.

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