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Math Help - Stocks and Bonds

  1. #1
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    Lightbulb 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?
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  2. #2
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    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.
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  3. #3
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    Quote Originally Posted by earutledgesr64 View Post
    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?
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