Question

You have just purchased a newly issued municipal bond for $1,000. The bond pays $50 to its holder at the end of the the first, second, and third years and pays $1,050 upon its maturity at the end of the following year.

a. What are the principal amount, the term, the coupon rate, and the coupon payment for your bond?

Instructions: Enter your responses as whole numbers.

Principal amount: $   

Term: years

Coupon rate: %

Coupon payment: $   

b. If you decide to sell your bond at the end of 3 years (after receiving the third $50 payment), what price can you expect for your bond if the one-year interest rate at that time is 2 percent? 4 percent? 6 percent?

Instructions: Enter your responses as whole numbers.

Expected price for the bond at:

2 percent: $   

4 percent: $   

6 percent: $

Answer 1

The following are the data inputs in spreadsheet:

The following are the obtained results in spreadsheet: