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Assuming that the current interest rate is 3 percent, compute the present value of a five-year,...

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Finance

Assuming that the current interest rate is 3 percent, computethe present value of a five-year, 5 percent coupon bond with a facevalue of $1,000. What happens when the interest rate goes to 4percent? What happens when the interest rate goes to 2percent?  

Instructions: Enter your responses rounded tothe nearest penny (two decimal places).

PV at an interest rate of 3% =$          

PV at an interest rate of 4% = $   

The present value  (Click toselect)  falls  rises  when theinterest rate rises to 4 percent.

PV at an interest rate of 2% = $

The present value  (Click toselect)  rises  falls  when theinterest rate falls to 2 percent.

Answer & Explanation Solved by verified expert
3.9 Ratings (526 Votes)
1When interest rate is 3 Information provided Face value future value 1000 Yield to maturity 3 Time 5 years Coupon rate 5 Coupon rate 0051000 50 The present value of the bond is calculated by entering the below in a financial calculator FV 1000 IY 3 N 5 PMT 50    See Answer
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Transcribed Image Text

Assuming that the current interest rate is 3 percent, computethe present value of a five-year, 5 percent coupon bond with a facevalue of $1,000. What happens when the interest rate goes to 4percent? What happens when the interest rate goes to 2percent?  Instructions: Enter your responses rounded tothe nearest penny (two decimal places).PV at an interest rate of 3% =$          PV at an interest rate of 4% = $   The present value  (Click toselect)  falls  rises  when theinterest rate rises to 4 percent.PV at an interest rate of 2% = $The present value  (Click toselect)  rises  falls  when theinterest rate falls to 2 percent.

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