You will receive $50 interest every six months from your investment in a corporate bond. The bond

Question:

You will receive $50 interest every six months from your investment in a corporate bond. The bond will mature in five years from now and has a face value of $1,000. This means that if you hold the bond until its maturity, you will continue to receive $100 interest semiannually and $1,000 face value at the end of five years.
(a) What is the present value of the bond in the absence of inflation if the market interest rate is 8%?
(b) What would happen to the value of the bond if the inflation rate over the next five years is expected to be 3%?

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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