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Manal Elkhoshkhany
Manal Elkhoshkhany, Tutor
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A $1000 par value bond was issued 25 yrs ago at a 7% coupon

Customer Question

A $1000 par value bond was issued 25 yrs ago at a 7% coupon rate. It currently has 10 yrs remaining to maturity. Interest rates on similar debt obligations are now 12%.
a. Compute the current price of the bond using an assumption of semi-annual payments.
b. If Mr. Robinson initially bought the bond at par value, what is his percentage loss (or gain)?
c. now asume Mrs. Pinson buys the bond at its current market value and holds it to maturity, what will her percentage return be?
d. Although the same dollar amounts are involved in part b and c, explain why the percentage gain is larger than the percentage loss.
Submitted: 8 years ago.
Category: Finance
Expert:  Manal Elkhoshkhany replied 8 years ago.



I had answered the question incorrectly, but since you have not checked the solution, I am removing the solution. If you still need help with this question, please advise me and I will post the correct answer.


P.S. Please do not click accept so that you do not get charged