# Stocks and Bonds

• Mar 10th 2011, 06:51 AM
earutledgesr64
Stocks and Bonds
You purchased a \$1,000 five percent coupon bond that matures in 10 years.
How much would your bond be worth if interest rates fall to 4% the day after you purchase the bond? What would the bond be worth in one year if interest rates fell to 4% at that point?
• Mar 10th 2011, 03:04 PM
Volga
The value of the bond is the present value of all future cash flows (coupon payments and par value at redemption) discounted at the relevant rate - in this case, the relevant rate is 4%.
Assume you purchased it at par so that the interest rate fall to 4% from 5%? because you don't specify what was the purchase price of the bond or the relevant interest rate when it was purchased.
• Mar 10th 2011, 06:19 PM
Wilmer
Quote:

Originally Posted by earutledgesr64
You purchased a \$1,000 five percent coupon bond that matures in 10 years.
How much would your bond be worth if interest rates fall to 4% the day after you purchase the bond?
What would the bond be worth in one year if interest rates fell to 4% at that point?

Very badly worded problem; this is same thing (assuming rate is annual):
What is present value at rate 4% of a \$1000 bond with 5% annual coupons:
maturing in 10 years?
maturing in 9 years?