Question
At time t = 0 (Now), in the bond market you observe a regular coupon bond with following characteristics: Face value: $1,000.00; Maturity: 4 years;
At time t = 0 (Now), in the bond market you observe a regular coupon bond with following characteristics: Face value: $1,000.00; Maturity: 4 years; Coupon rate: 7 % and coupons are paid annually. The market interest rate/your required rate of return/yield to maturity is 8.000% per annum continuously compounded.
What is the bond price at time t=0 (Now)? [You already answered in the previous problem.]
Suppose that during the first year after you purchased the bond, the market interest rate has decreased to 7.750% per annum continuously compounded. And you decided to sell the bond at the end of year 1 (t = 1). Then, what is your total proceeds in US dollars from the bond (selling price of bond plus coupon payments) at the end of year 1?
(Round off to four decimal places)
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