Daniele wants to calculate the price of an Italian government bond. It has a 1,000 par value
Question:
Daniele wants to calculate the price of an Italian government bond. It has a €1,000 par value with a 1% coupon rate (with interest paid semiannually) that matures in five years. If the bond is priced to provide a required return of 2.5%, what is the bond’s current price?
Step by Step Answer:
Par value is most often used in relation to bonds Bonds are typically issue...View the full answer
Fundamentals Of Investing
ISBN: 9780135175217
14th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
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 Business questions
-
A manager wants to calculate the price of a product produced by the firm she works for. Recent calculations show that the elasticity value of the product produced by the firm is -2, and that the...
-
Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 3.8 percent.
-
Calculate the price of a zero coupon bond that matures in 15 years if the market interest rate is 5.75 percent.
-
Analyzing Revenues and Expenses and Completing an Income Statement Neighborhood Realty, Incorporated, has been operating for three years and is owned by three investors. S. Bhojraj owns 60 percent of...
-
Two mutually exclusive projects have projected cash flows as follows: a. Determine the internal rate of return for each project. b. Determine the net present value for each project at discount rates...
-
Currently, JustLee Books bills customers for orders by enclosing an invoice with each order when its shipped. A customer then has 10 days to send in the payment. Of course, this practice has resulted...
-
4. Read the section on viruses, Trojan horses, and worms that appears later in this chapter (pages 92-93). Comment on Mark's statement "Viruses are brought on by user stupidity, *that's all."
-
The Iwata Oil Company incurred costs of $6 million during 2007 drilling for oil. Half the costs resulted in oil being found and half resulted in dry wells. The company expects the oil wells to...
-
Explain the impact of different forms of dividends on the retained earnings and future growth of the firm. How a firm can attain the balance between growth and dividend payout?
-
Hot Air in a Physics Leeture (a) A typical student listening attentively to a physics lecture has a heat output of 100 W. How much heat energy does a class of 90 physics students release into a...
-
Tsuyoshi is considering two Japanese government bonds, both with a 10-year maturity. One with a 0.5% coupon and a 2% yield, and the other with a 0.2% coupon and a 1.5% yield. Which of these has the...
-
Using the Wall Street Journal, Barrons, or an online source, find the bond yields for Treasury securities with the following maturities: 3 months, 6 months, 1 year, 3 years, 5 years, 10 years, 15...
-
The Colgate-Palmolive Company has 36,600 employees. If the company wishes to estimate, within 2 percentage points and with 99% confidence, the percentage of employees who are interested in...
-
What should be the equivalent units of production for (1) Dept M and (2) Dept. P? Can you please show the solutions and answer. Thanks Problem 1 Lee Gon Mfg. Co has its product processed in two...
-
Moullierat Mfg. is considering a rights offer. The company has determined that the ex-rights price will be $95. The current price is $102 per share, and there are 24 million shares outstanding. The...
-
This question involves hypothesis testing. The following numbers will help you answer these questions. The random variable Z ~N(0, 1) is standard normal. P(Z >1.28).1 P(Z1.65) .05 P(Z1.96) .025 P(Z...
-
Human service organizations require strong and effective leadership. Understanding what qualities make up an effective leader and how these qualities can be cultivated is of critical importance for...
-
18. What is the name of the heat treatment performed on a cold worked sample? 19. What is the percent coldwork of a sample with an initial thickness of 11mm and a final thickness of 7mm? 20. Which...
-
Establish identity. cos? 0 sin? 0 1 - tan? 0 cos? 0
-
Find the radius of convergence of? 1.2.3 1.3.5 (2n-1) r2n+1 -1
-
On the basis of the current structure of the world's financial markets and your knowledge of the NYSE and Nasdaq OMX markets, describe the key features, functions, and problems that would be faced by...
-
Critics of longer trading hours believe that expanded trading sessions turn the stock market into a casino and place the emphasis more on short-term gains than on long-term investment. Do you agree?...
-
Describe how, if at all, conservative and aggressive investors might use each of the following types of transactions as part of their investment programs. Contrast these two types of investors in...
-
business law A partner may actively compete with the partnership True False
-
A company provided the following data: Selling price per unit $80 Variable cost per unit $45 Total fixed costs $490,000 How many units must be sold to earn a profit of $122,500?
-
Suppose a 10-year, 10%, semiannual coupon bond with a par value of $1,000 is currently selling for $1,365.20, producing a nominal yield to maturity of 7.5%. However, it can be called after 4 years...
Study smarter with the SolutionInn App