Question

6. Problem 7.15 Click here to read the eBook: Bond Valuation Problem Walk-Through BOND VALUATION Bond X is noncallable and has 20 years to maturity, a 7% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 9.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent. $

Answer 1

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OND - Microsoft Excel (Product A File Home Insert Page Layout Formulas Data Review View Add-Ins Cut - AutoSum General A A Wrap Text Calibri 11 Fill Copy Paste A Merge & Center Conditional Format BIU S % Cell Insert Delete Format Sort & Find & Format Painter Clear ble Styles er Select Formatting Clipboard Font Alignment Number Shules Cells Editing GM318 GG GO GH GI GJ GK GL GM GN GP GQ 317 318 BOND X NON CALLABLE 319 COUPON 7% 20 320 YEARS 321 FACE VALUE 1000 COUPON (S) 70 322 323 324 AFTER 5 YEARS 325 YEARS LEFT 15 326 YTM 9.50% 804.30 EXCEL-PV(GK326,GK325,-GK322,-GK321) 327 PRICE 328 329 REQUIRED RATE OF RETURN 9% HOLDING PERIOD (YEARS) 330 5 804.30 331 SELLING PRICE 332 333 ANSWER: B: PURCHASE PRICE 795.01 EXCEL-PV(GK329,GK330,-GK322,-GK331) 334 335 YIELD SPOT Sheet 2 AFN BANKING NOTE BIDDING, UNDERWRITING LP, IP, MRP, INFLATION YIELD CLEAN INVOICE PRICE Sheet 130 % WARRANTrefund bond 4 EUAC AW PM LIFE Re erences 10:11 ENG 2-07-2019