dem 13-02 a. A $1,000 bond has a 6.5 percent coupon and matures after nine years. If current interest rates are 8 percent, what should be the price of the bond? Assume that the bond pays Interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar s b. If after five years interest rates are still 8 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar. s c. Even though interest rates did not change in a and b, why did the price of the bond change? The price of the bond with the longer term is Select than the price of the bond with the shorter term as the investors will collect the Select vinterest payments and receive the principal within a longer period of time. d. Change the interest rate in a and b to 6 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar. Price of the bond (nine years to maturity): $ Price of the bond (four years to maturity): $ Even though the interest rate is 6 percent in both calculations, why are the bond prices different? The price of the bond with the longer term is Select than the price of the bond with the shorter term as the investors will collect the -Select vinterest payments for a longer period of time. Grade it Now Save & Continue Continue without saving Interest Factors for the Present Value of an Annuity of One Dollar 16% Time Period (e.g. year) 1 2. 3 4 5 NM 1% 2% 3% % 6% 3% 89 99% 10% 12% 14% 18% 20% 28% 32% 36 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 1.970 1.942 1913 1.886 1.859 1.8B3 1.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1332 1.276 2.9412.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2106 1.981 1.868 1.766 1.674 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.5892.404 2.241 2.096 1.966 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2991 2.745 2.532 2345 2.181 6 7 8 9 10 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4,486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 7.652 7.325 7020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 8.566 8.162 7.786 7435 7108 6.802 6.515 6.247 5.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2603 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2650 0 11 12 13 14 15 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2978 2.683 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3387 3.013 2.708 12.134 11348 10.635 9.986 9.394 8.534 8.358 7904 7.487 7.103 6.424 5.842 5.342 4910 4.533 3.912 3.427 3.040 2727 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3,061 2740 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 17 18 19 20 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 15.562 14,292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.097 3.539 3.109 2.770 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2772 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778 Interest Factors for the Present Value of One Dollar 1% Time Period (e.g. year) 1 2 3 4 5 4% 6% 980 9% 10% 12% -NM 14% 16% 2% 3% 971 961 943 .942 915 .924 .889 906 863 990 980 971 961 951 28% 962 925 .889 .855 .822 5% 952 .907 .864 .823 .784 943 .890 .840 .792 .747 7% .935 .873 .816 .763 .713 8% 926 .857 .794 .735 .681 917 .842 772 .708 .650 909 .826 1751 .683 .621 .893 .797 .712 .636 .567 .877 .769 .675 .592 519 15% 870 .756 .658 .572 497 .862 .743 .641 552 476 18% 847 .718 .609 516 437 20% .833 694 579 482 402 24% 806 .650 524 423 .781 .610 477 373 291 341 596 6 7 8 9 10 UNO 942 933 923 914 905 .888 .871 1853 .837 .820 .838 .813 .789 .766 1547 .790 .760 .731 .703 .676 .746 .711 .677 .645 .614 .705 .666 630 .665.623 .583 .627 582 .540 .592 .544 .500 .558 .508 .463 564 513 467 .424 386 .502 .507 452 .404 361 322 275 222 456 400 351 308 .270 432 376 327 284 .247 410 354 305 .263 227 -460 422 370 314 266 .226 .191 335 279 .233 .194 1.162 1.744 -179 .144 .116 227 -178 139 . 108 .085 -722 701 11 12 13 14 15 .896 .887 .879 .870 .861 .804 .788 .773 .758 .743 .650 .625 .601 .577 .555 585 .557 .530 .505 .481 -681 .661 .642 .527 .497 .469 .442 .417 475 .444 415 429 .397 .368 .340 315 388 356 326 .299 .275 350 .319 .290 .263 .239 .287 .257 .229 .205 .183 094 076 .237 .208 182 .160 .140 .215 .187 .163 .141 123 388 .195 .168 145 125 .108 .162 .137 116 099 084 ..135 .112 .093 078 065 061 066 .052 040 032 025 362 049 040 218 .163 16 17 18 19 20 .853 .844 .836 .828 .820 .728 714 .700 .686 .673 .623 .605 .587 .570 .554 .534 .513 494 .475 458 436 416 396 377 .394 .371 350 .331 312 .339 317 .296 .276 258 .292 .270 .250 232 215 .252 .231 212 .194 -178 .198 .180 .164 .149 146 .130 .116 .104 .123 .107 093 .108 093 080 095 081 .069 _083 .070 060 .073 061 051 071 060 .051 .043 2054 .045 .038 031 026 1.032 019 026 015 021 012 2017 2009 2014 007 456 037 25 .780 .610 .478 375 295 .233 .184 .146 .116 .092 .059 ,038 .030 024 2016 010 1.005 002 30 .742 552 412 308 .231 .174 .131 .099 .075 .057 .033 020 2015 2012 007 _004 2002 .001 dem 13-02 a. A $1,000 bond has a 6.5 percent coupon and matures after nine years. If current interest rates are 8 percent, what should be the price of the bond? Assume that the bond pays Interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar s b. If after five years interest rates are still 8 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar. s c. Even though interest rates did not change in a and b, why did the price of the bond change? The price of the bond with the longer term is Select than the price of the bond with the shorter term as the investors will collect the Select vinterest payments and receive the principal within a longer period of time. d. Change the interest rate in a and b to 6 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar. Price of the bond (nine years to maturity): $ Price of the bond (four years to maturity): $ Even though the interest rate is 6 percent in both calculations, why are the bond prices different? The price of the bond with the longer term is Select than the price of the bond with the shorter term as the investors will collect the -Select vinterest payments for a longer period of time. Grade it Now Save & Continue Continue without saving Interest Factors for the Present Value of an Annuity of One Dollar 16% Time Period (e.g. year) 1 2. 3 4 5 NM 1% 2% 3% % 6% 3% 89 99% 10% 12% 14% 18% 20% 28% 32% 36 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 1.970 1.942 1913 1.886 1.859 1.8B3 1.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1332 1.276 2.9412.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2106 1.981 1.868 1.766 1.674 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.5892.404 2.241 2.096 1.966 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2991 2.745 2.532 2345 2.181 6 7 8 9 10 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4,486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 7.652 7.325 7020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 8.566 8.162 7.786 7435 7108 6.802 6.515 6.247 5.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2603 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2650 0 11 12 13 14 15 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2978 2.683 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3387 3.013 2.708 12.134 11348 10.635 9.986 9.394 8.534 8.358 7904 7.487 7.103 6.424 5.842 5.342 4910 4.533 3.912 3.427 3.040 2727 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3,061 2740 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 17 18 19 20 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 15.562 14,292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.097 3.539 3.109 2.770 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2772 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778 Interest Factors for the Present Value of One Dollar 1% Time Period (e.g. year) 1 2 3 4 5 4% 6% 980 9% 10% 12% -NM 14% 16% 2% 3% 971 961 943 .942 915 .924 .889 906 863 990 980 971 961 951 28% 962 925 .889 .855 .822 5% 952 .907 .864 .823 .784 943 .890 .840 .792 .747 7% .935 .873 .816 .763 .713 8% 926 .857 .794 .735 .681 917 .842 772 .708 .650 909 .826 1751 .683 .621 .893 .797 .712 .636 .567 .877 .769 .675 .592 519 15% 870 .756 .658 .572 497 .862 .743 .641 552 476 18% 847 .718 .609 516 437 20% .833 694 579 482 402 24% 806 .650 524 423 .781 .610 477 373 291 341 596 6 7 8 9 10 UNO 942 933 923 914 905 .888 .871 1853 .837 .820 .838 .813 .789 .766 1547 .790 .760 .731 .703 .676 .746 .711 .677 .645 .614 .705 .666 630 .665.623 .583 .627 582 .540 .592 .544 .500 .558 .508 .463 564 513 467 .424 386 .502 .507 452 .404 361 322 275 222 456 400 351 308 .270 432 376 327 284 .247 410 354 305 .263 227 -460 422 370 314 266 .226 .191 335 279 .233 .194 1.162 1.744 -179 .144 .116 227 -178 139 . 108 .085 -722 701 11 12 13 14 15 .896 .887 .879 .870 .861 .804 .788 .773 .758 .743 .650 .625 .601 .577 .555 585 .557 .530 .505 .481 -681 .661 .642 .527 .497 .469 .442 .417 475 .444 415 429 .397 .368 .340 315 388 356 326 .299 .275 350 .319 .290 .263 .239 .287 .257 .229 .205 .183 094 076 .237 .208 182 .160 .140 .215 .187 .163 .141 123 388 .195 .168 145 125 .108 .162 .137 116 099 084 ..135 .112 .093 078 065 061 066 .052 040 032 025 362 049 040 218 .163 16 17 18 19 20 .853 .844 .836 .828 .820 .728 714 .700 .686 .673 .623 .605 .587 .570 .554 .534 .513 494 .475 458 436 416 396 377 .394 .371 350 .331 312 .339 317 .296 .276 258 .292 .270 .250 232 215 .252 .231 212 .194 -178 .198 .180 .164 .149 146 .130 .116 .104 .123 .107 093 .108 093 080 095 081 .069 _083 .070 060 .073 061 051 071 060 .051 .043 2054 .045 .038 031 026 1.032 019 026 015 021 012 2017 2009 2014 007 456 037 25 .780 .610 .478 375 295 .233 .184 .146 .116 .092 .059 ,038 .030 024 2016 010 1.005 002 30 .742 552 412 308 .231 .174 .131 .099 .075 .057 .033 020 2015 2012 007 _004 2002 .001