How to calculate market value of a bond?
A 20-year bond pays 12% on a face value of $ 1,000. If similar bonds are currently yielding 9%, What is the market value of the bond? Use annual analysis.
Could someone help me solve this, I dont know the formula for market value! If you could please explain I would be grateful!!
thank you zuez! do you think you could help me out again.? How would I find the answer using semiannual analysis?
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Answer by zeuz
You have to know how to calculate an annuity. The issue here is that a $ 1,000 face value is getting $ 120 / year in interest. So, the real question is what would the corresponding face value of bond be if it were earning $ 120 / year in interest, but the interest were 9%?
Answer is: $ 120 / .09 = $ 1,320 (rounded to the nearest $ 10).
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