In 2009, you purchased a $1,000 par value corporate bond with an interest rate of 9 percent. Today, comparable bonds are paying 6.25 percent. What is the approximate dollar price for which you could sell your bond

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10-06-2022
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In 2009, you purchased a $1,000 par value corporate bond with an interest rate of 9 percent. Today, comparable bonds are paying 6.25 percent. What is the approximate dollar price for which you could sell your bond

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VidyaaTech2022 VidyaaTech2022 · Answer 1 · 2022-06-16T15:21:34+02:00

The approximate price at which the bond can be sold comes out to be $1,400.

What is meant by bond?

A bond is a tradeable security that provides fixed interest to the investors along with the principal amount.

Given values:

The purchase value of the bond:$1,000

Interest rate: 9%

Comparable interest: 6.25%

Computation of approximate market value of bond:

[tex]\rm\ Approximate \rm\ market \rm\ value=\frac{\rm\ Purchase \rm\ value \rm\ of \rm\ bond \times\ \rm\ Interest \rm\ rate}{\rm\ Comparable \rm\ interest} \\\rm\ Approximate \rm\ market \rm\ value=\frac{\$1,000 \times\ 9\%}{6.25\%} \\\rm\ Approximate \rm\ market \rm\ value=\frac{\$90}{6.25\%} \\\rm\ Approximate \rm\ market \rm\ value=\$1,400[/tex]

Therefore, the approximate value of the bond amount to $1,400 at which it can be sold in the market.

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