A ten-year bond, with par value equals $1000, pays 10% annually. If similar bonds are currently yielding 6%?

annually, what is the market value of the bond

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  • Marc
    Lv 7
    10 years ago
    Best Answer

    To solve, you calculate the Present Value using these criteria:

    Future Value = -$1,000

    Annual Payment = -$100 ($1,000 X 10%)

    Number of Periods = 10

    Interest Rate = 6%

    I used the PV function in Excel, and then double checked the answer on my HP12C financial calculator. The answer comes back as:

    $1,294.40

    The reason that the market value is greater than the $1,000 par value is because the bond pays an annual payment of 10%, but similar bonds are only paying 6%, thereby making this bond more valuable, as it pays an extra $40 per year for the 10 year period.

    Source(s): 35 years of accounting experience
  • Mary
    Lv 4
    4 years ago

    A ten-year bond pays 8 % annual interest (paid semiannually). If similar bonds are currently yielding 6 % annually, what is the market value of the bond? Question 3 options: A) $1,000 B) $1,147.20 C) $1,148.77 D) $1,080.00

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