what is the present worth of a $50,000 bond that has an interest of 20% per year payable quarterly? the bond matures in 5 years. the interest rate in the marketplace is 10% per year, compounded semiannually.

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HeroesofOlympus4148 HeroesofOlympus4148

08-11-2022
Business

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what is the present worth of a $50,000 bond that has an interest of 20% per year payable quarterly? the bond matures in 5 years. the interest rate in the marketplace is 10% per year, compounded semiannually.

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contexto1028 contexto1028 · Answer 1 · 2022-11-12T16:49:24+01:00

At maturity, a coupon bond pays both the principal and periodic interest payments at a fixed frequency. Discounted at the bond's required rate of return, the present value of the bond payments determines the coupon bond's market price.

In any case, the yield to maturity decreases with the bond's price.

The bond has a present value of $50,000.

The bond earns 2500 per quarter, or 50,000 times 20% divided by four. There will be a total of 20 quarterly coupon payments as a result of the bond's five-year maturity. We must determine the quarterly discount rate in order to determine the bond's present value.

By dividing the sum of the security's annual coupon payments by the bond's par value, the bond's coupon rate can be determined. A bond with a $1,000 face value and a $25 semiannual coupon, for instance, has a coupon rate of 5%.

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