Question

Homework: Chapter 7 Homework Save Score: 0 of 3 pts HW Score: 0%,0 of 17 pts 1 of 7 (0 complete) Problem 7-3 (similar to) Question Help (Bond valuation) You own a 15-year, $1,000 par value bond paying 7.5 percent interest annually. The market price of the bond is $875, and your required rate of return is 11 percent a. Compute the bond's expected rate of return b. Determine the value of the bond to you, given your required rate of return. c. Should you sell the bond or continue to own it? a. What is the expected rate of return of the 15-year, $1,000 par value bond paying 7.5 percent interest annually if its market price is $875? % (Round to two decimal places.)

Answer 1

a) Expected rate of return of bond:-

=RATE(15,7.5%*1000,-875,1000)

=9.06%

b) Value of bond:-

=PV(11%,15,7.5%*1000,1000)

=748.32

c) sell as the expected rate is less than the required rate.