A bond with 5 years to maturity and a coupon rate of 6% has a par, or
Question:
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Step by Step Answer:
The PV of a bond is the PV of its future cash flows In the case of the 5year bond ...View the full answer
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Finance questions
-
Fresh air at 3900 cfm, 42 o C and 30% rh is mixed with recirculated air at 25 o C and 50% rh. The mixed air stream temperature is 34 o C. The mixed air stream is then cooled, dehumidified and...
-
Petes Powerful Pills ( PPP) has branched out and is now promoting a vaccine which is supposed to prevent statisticitis, a nasty disease afflicting students at the local Evermore University. They are...
-
Design a series of experiments that tests increasing succinate amounts of ADP (0, 500, 750 and 1000 nmol) in the presence of no inhibitors. The curve measures oxygen consumption. Note the general...
-
Find a couple of bad project management examples from around the world. What were the reasons for the failure? (500 words max) Find a couple of good project management examples from around the world....
-
Your examination of the records of Southlake Corp. shows the company collected $187,800 in cash from customers and paid $109,400 in cash for operating costs in its first year of operations. If...
-
To find out whether the inhabitants of two South Pacific islands may be regarded as having the same racial ancestry, an anthropologist determines the cephalic indices of six adult males from each...
-
Jose Hernandez opened a small motorcycle repair shop, Hernandez Cycle Repair, on January 2, 20x6. The shop also sells a limited number of motorcycle parts. In January 20x7, Hernandez realized he had...
-
Calafs Drillers erects and places into service an off-shore oil platform on January 1, 2011, at a cost of $10,000,000. Calaf is legally required to dismantle and remove the platform at the end of its...
-
In calculating the maturity date of a note, the date thatthe note begins on is not included but the date that it ends on is included. True False
-
Vanessa is the owner of a well-known brand of handmade decorative items such as dream catchers and candle holders. The brand, Sirrah, has a reputation for designing and selling high-quality items at...
-
You have two assets and must calculate their values today based on their different payment streams and appropriate required returns. Asset 1 has a required return of 15% and will produce a stream of...
-
Carl Foster, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in todays marketplace. He has looked up the rate paid on 3-month...
-
Evaluate the accuracy of the following statement: The recent depreciation of the U.S. dollar had a positive effect on the U.S. aggregate demand curve.
-
On November 17, 2005, Conrad Black and three other executives1 of Hollinger International, Inc., were charged with eleven counts of fraud with regard to payments allegedly disguised as noncompete...
-
In a two-way ANOVA, the P-value for interactions is P = 0.45, and the P-values for the main effects are P = 0.023 for the row factor and P = 0.34 for the column factor. a. Can you reject the...
-
Pierre Garvey, the CEO of Revel Information Technology, sat back in his chair and looked at his assistants. He frowned. My son has been diagnosed with MLD, he said. They all looked at him with shock....
-
If the sample means are widely spread, the value of SSTr will tend to be large. In Exercises 912, determine whether the statement is true or false. If the statement is false, rewrite it as a true...
-
On April 14, 2010, Russian investigators raided the Moscow offices of Hewlett Packard (HP). They did so at the request of German prosecutors who were examining whether HP had paid bribes totaling...
-
Table 3.6 lists the variables in the WorkWomen.dta and WorkMen.dta data sets, which are based on Chakraborty, Holter, and Stepanchuk (2012). Answer the following questions about the relationship...
-
How can you tell from the vertex form y = a(x - h) 2 + k whether a quadratic function has no real zeros?
-
Traditional quality control methods identify variation as the enemy of ensuring quality. However, the control of variation by itself can never achieve the remarkably low nonconformance rates of...
-
Is there a cost associated with taking a cash discount? Is there any cost associated with giving up a cash discount? How do short-term borrowing costs affect the cash discount decision?
-
What is stretching accounts payable? What effect does this action have on the cost of giving up a cash discount?
-
Jasmine Scents has been given two competing offers for short-term financing. Both offers are for borrowing $15,000 for 1 year. The first offer is a discount loan at 8%; the second offer is for...
-
Provision for Warranty Costs at Tesla Values: Estimated Warranty Costs: $500,000 Actual Warranty Claims: $100,000 Warranty Period: 1 year Requirements: Apply the conservatism principle to estimate...
-
Cost Allocation at Samsung Values: Item Amount Total Overhead $6,000,000 Machine Hours 120,000 Labor Hours 90,000 Requirements: Allocate the overhead costs using machine hours. Allocate the overhead...
-
A company has decided to start a petty cash fund for $ 1 5 0 . Which of the following is the correct journal entry? no entry is required \ table [ [ Expenses , 1 5 0 , ] , [ Petty Cash,, 1 5 0 ] ] \...
Study smarter with the SolutionInn App