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22 May, 20:43

How is the value of a bond determined? What is the value of a 10-year, $1,000 par value bond with a 10% annual coupon if its required rate of return is 10%?

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  1. 22 May, 21:59
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    The present value of the bond is $1000

    Explanation:

    The value of a bond equals the present value of its expected future cash flows.

    The formula

    Present Value Paid at Maturity = Face Value / (Market Rate / 100) ^ Number Payments

    Present Value of Interest Payments = Payment Value * (1 - (Market Rate / 100) ^ - Number Payments) / Number Payments)

    Present Value of Bond = Present Value Paid at Maturity + Present Value of Interest Payments
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