bond pricing

bond pricing

Assume that you are considering the purchase of a $1,000 par value bond that pays $70 each six months and has 10 years before it matures. If you buy this bond
today, you expect to hold it for 5 years and then sell it in the secondary market. You (and other investors) currently require a nominal annual rate of 16 percent,

bond pricing

but you expect the market to require a nominal rate of only 12 percent when you sell the bond (in 5 years) due to a general decline in interest rates. How much
should you be willing to pay for this bond today (on February 10, 2013)? Note: Since you will be selling this bond in 5 years in the secondary market to another
investor, you are not holding the bond to its maturity date of 2/10/2023

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