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Linda_us
Linda_us, Finance, Accounts & Homework Tutor
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Experience:  Post Graduate Diploma in Management (MBA)
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A bond with 5 years to maturity and a coupon rate of 6% has

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A bond with 5 years to maturity and a coupon rate of 6% has a face value of $20,000.
Interest (coupon payment) is paid annually
a. If an investor's required rate of return is 7% on this bond, how much is this investor
willing to pay for this bond?
b. Please use this bond as an example, to explain the relationship that exists between
the following elements of a bond: coupon rate, required rate of return (YTM), par value,
and bond price.
HiCustomerbr />
a) If an investor's required rate of return is 7% on this bond he would be willing to pay 19179.96.

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b) If required rate of return(YTM) is greater than coupon rate then bond price is less than face value and if required rate of return(YTM) is less than coupon rate then bond price is more than the face value of the bond. Since in the current case YTM of 7% is greater than coupon rate of 6% hence the bond value is 19179.96 which is less than the face value.

Regards

Linda
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Customer: replied 7 years ago.
Can you help me with another question?
HiCustomer

I can try. You can accept this post if you are satisfied and then post your second question in a second post.

Regards

Linda
Customer: replied 7 years ago.
Suppose you bought the following bond for $1100. The bond has a face value of $1000,
annual coupon rate 10% payable annually, and matures in 2 years. Please answer the
following questions:
a. What is the bond's current yield?
b. What is the bond's yield to maturity?
c. Exactly one year later, interest rate rises to 15% due to inflation increase. If your
holding period is only one year, i.e., you have to sell the bond after one year, what price
would you end up selling at? What will be your rate of return for holding this bond for one
year?
d. Please use this bond as an example to explain the interest rate risk when investing in
bonds.
Customer: replied 7 years ago.
Did you get the 2nd question? I gave you 10 dollars,will that work?
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Customer: replied 7 years ago.
Linda, you are amazing, this works!

Can you shoot me your email, I would love to get with you from here on out on my homework to double check it. I have 4 more classes and my homework questions consist of minimal questions - so no room for error.

If this is the best way, I will look for you. Do i just ask for you? What hours are you online? Thank you so much!

JoshXXX@XXXXXX.XXX
HiCustomerbr />
I can't share my email id it against the policy. In future you can post your question in JA and address them to me by writing "FOR LINDA" in front of your post. I am usually online and I will try to complete your question ASAP.

Regards

Linda

Customer: replied 7 years ago.
Perfect, thank you so much! Did you get your money? I want to make sure you're taken care of... thanks!
Yes I got it.

Thanks for quick acceptance and positive feedback.

Regards

Linda

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