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Compute the present value of bond

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Reference no: EM132559838

Imagine a bond that promises to make coupon payment of $100 one year from now and $100 two years from now, and to repay the principal of $1000 3 years from now. Assume also that the market interest rate is 8 percent per year, and that no perceived risk is associated with the bond.

a. Compute the present value of this bond

b. Suppose the bond is being offered for $1100 would you buy the bond at that price? What do you expect to happen to the price of the bond in the near future? Explain

c. Suppose the bond is being offered at $930. Would you buy the bond? What do you expect to happen to the bond price in the near future? Explain

d. What will happen to the yield of this bond when the price increases? Explain

Reference no: EM132559838

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