Question
An investor buys a $1,000, 20 year 7 percent (interest paid semiannually) bond at par. After five years have passed, interest rates are 10 percent.
An investor buys a $1,000, 20 year 7 percent (interest paid semiannually) bond at par. After five years have passed, interest rates are 10 percent. How much did the investor lose on the purchase of the bond? (Hint: price today and price when rates are 10%. If it sells at part today, what do you know about the required rate today?. This is a semiannual bond) Please show excel calculation.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the loss incurred by the investor on the purchase of the bond we need to compare the present value of the remaining cash flows at the new ...
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Step: 2
Step: 3
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Investments An Introduction
Authors: Herbert B Mayo
9th Edition
324561385, 978-0324561388
