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You buy a $2,000 bond on August 15, 2014, paying bond interest at j2 = 6%...

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Finance

You buy a $2,000 bond on August 15, 2014, paying bond interestat j2 = 6% and redeemable at par on August 15, 2024.

a) How much did you pay for the bond if your desired yield rateis j2 = 7%?

b) After exactly 5 years you sell the bond. Interest rates havedropped and the bond is sold to a buyer to yield at j1 =4%. Determine the sale price.

c) Determine the approximate value of the yield ratej2 to the maturity using the method of average if thebond is quoted at 109.50 on August 15, 2019.

Answer & Explanation Solved by verified expert
4.4 Ratings (622 Votes)
1 The price to be paid for the Bondis the future value of expected cash flows discounted at rate ofinterest hence periodic cash flows 6 per year    See Answer
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