What should be the initial price of the bond? (Round \"PV Factor\" to 3 decimal

Question

What should be the initial price of the bond? (Round "PV Factor" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

If immediately upon issue, interest rates dropped to 9 percent, what would be the value of the zero-coupon rate bond? (Round "PV Factor" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

If immediately upon issue, interest rates increased to 11 percent, what would be the value of the zero-coupon rate bond? (Round "PV Factor" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Price of the Bond = 1000*PVIF(15, 10%) = 1000*.239 = 239

Part B:

Value of the Bond = 1000*PVIF(15, 9%) = 1000*.275 = 275

Part C:

Value of the Bond = 1000*PVIF(15, 11%) = 1000*.209 = 209

Thanks.

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