Business, 21.08.2019 20:30 imsmart916

You are interested in investing in a five-year bond that pays a 6.6 percent coupon rate with interest to be received semiannually. your required rate of return is 9.8 percent. what is the most you would be willing to pay for this bond?

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Answer from: nschavez123

Assuming a par value of $1,000, the most i would be willing to pay for this bond is $875.85

Explanation:

The price of a bond is equivalent to the present value of all the cash flows that are likely to accrue to an investor once the bond is bought. These cash-flows are the periodic coupon payments that are to be paid semi-annually and the par value of the bond that will be paid at the end of 5 years.

During the 5 years, there are 10 equal periodic coupon payments that will be made. Assuming a par value equal to $1,000, in each year, the total coupon paid will be 1000*0.066 =$66. This annual payment will be split into two equal payments equal to $\frac{66}{2}=33$ . This stream of cash-flows is an ordinary annuity.

the required rate of return is to 9.8% per annum which equates to 4.9% per semi annual period.

The PV of the cash-flows = PV of the coupon payments + PV of the par value of the bond

=33*PV Annuity Factor for 10 periods at 4.9%+ $1,000* PV Interest factor with i=4.9% and n =10

$= 33*\frac{[1-(1+0.049)^-^1^0]}{0.049}+ \frac{1,000}{(1+0.049)^1^0} =875.85$

Answer from: Quest

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%

Answer from: Quest

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi

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