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Suppose that you are considering the purchase of a bond that matures in 12 years.
The bond has a par value of $1,000, it pays a coupon of 10 percent (annually), and the
coupon is paid semiannually (10s).
A. Calculate the market value (price) of the bond today if the bond’s market rate
(yield) is 7%.
B. Calculate the market value (price) of the bond in five years if the bond’s market
rate is 4%
C. Calculate the Net Present Value and the yield on this bond investment if the
current market rate on this bond is 7%, you expect the market rate to be 4% in 5
years, you plan to sell the bond in five years, and your required rate of return on
this investment is 8% (4% semiannually). Is this an acceptable investment? (hint:
use the purchase price in part A, and the sell price in part B)

Sagot :

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