You have the option to buy a 10 year old bond. The bond offers a 5.3% annual interest (coupon) rate interests are paid annually, and the nominal value of the bond is 1687 EUR Flow much are you willing to pay for such a bond in EUR if you could put your money in a comparable investment that yields a return of 6.7% per annum

Name: Solved: You have the option to buy a 10 year old bond. The bond offers a 5.3% annual interest (coupon) rate interests are paid annually, and the nominal value of the bond is 1687 EUR Flow much are you willing to pay for such a bond in EUR if you could put your money in a comparable investment that yields a return of 6.7% per annum - MathMaster
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Answer to a math question You have the option to buy a 10 year old bond. The bond offers a 5.3% annual interest (coupon) rate interests are paid annually, and the nominal value of the bond is 1687 EUR Flow much are you willing to pay for such a bond in EUR if you could put your money in a comparable investment that yields a return of 6.7% per annum

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Jayne

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106 Answers

### Step 1: Calculate the Annual Coupon Payment

C = 0.053 \times 1687

C = 89.411 \text{ EUR}

### Step 2: Calculate the Present Value of the Annuity

PV_{\text{annuity}} = 89.411 \times \left(\frac{1 - (1 + 0.067)^{-10}}{0.067}\right)

PV_{\text{annuity}} = 636.79 \text{ EUR}

### Step 3: Calculate the Present Value of the Lump Sum

PV_{\text{lump sum}} = \frac{1687}{(1 + 0.067)^{10}}

PV_{\text{lump sum}} = 882.00 \text{ EUR}

### Step 4: Calculate the Total Present Value of the Bond

PV_{\text{total}} = PV_{\text{annuity}} + PV_{\text{lump sum}}

PV_{\text{total}} = 636.79 + 882.00

PV_{\text{total}} = 1518.79 \text{ EUR}

### Answer:
The total present value of the bond, which represents how much you should be willing to pay for it given a comparable investment yield of 6.7% per annum, is approximately 1518.79 EUR.

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