1. Find the present value of a 10%, 10-year coupon bond that is required to yield...

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Question

1. Find the present value of a 10%, 10-year coupon bond that is required to yield at the moment 12 percent. Assume interest i

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Answer 1

Answer #1

Assuming face value to be $1000

Rate = 12% / 2 = 6%

Number of periods = 10 * 2 = 20

Coupon = (0.1 * 1000) / 2 = 50

Present value = Annuity * [1 -1 / (1 + r)ⁿ] / r + FV / (1 + r)ⁿ

Present value = 50 * [1 -1 / (1 + 0.06)²⁰] / 0.06 + 1000 / (1 + 0.06)²⁰

Present value = 50 * [1 -1 / 3.20714] / 0.06 + 1000 / 3.20714

Present value = 50 * [1 - 0.31180] / 0.06 + 311.80429

Present value = 50 * 11.47 + 311.80429

Present value = $885.30

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Answer 2

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