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What is the market value of a bond that has a required rate of return of 10% p
What is the market value of a bond that has a required rate of return of 10% p.a. and pays $50 p.a. with only two years remaining to maturity, if the redemption value is $1000 and the initial market value of the bond was $850 when it was first issued eight years ago?
Question 5 options:
1) $571.80
2) $1421.80
3) $826.45
4) $913.22
Expert Solution
Computation of Price of Bonds using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of Bonds = ?
Rate = 10% p.a.
Nper = Number of Years remaining to Maturity = 2 Years
PMT = $50
FV = Face Value or Maturity Value = $1,000
Substituting the values in formula:
=-pv(10%,2,50,1000)
PV or Price of Bonds = $913.22
So, the correct option is 4th "$913.22".
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