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
Brand: MathMaster
Rating: 4.9 (271 reviews)

271

likes

1356 views

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

$Expert avatar$

Jayne

4.4

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.

Frequently asked questions (FAQs)

What is the limit of (5x^2 + 3x - 2) as x approaches 2?

Math question: What is the smallest positive integer solution to the equation x^n + y^n = z^n for n>2, as stated in Fermat's Last Theorem?

What is the derivative of e^(2x) * ln(x^2 + 1) with respect to x using the chain rule?

New questions in Mathematics

5(4x+3)=75

A car tire can rotate at a frequency of 3000 revolutions per minute. Given that a typical tire radius is 0.5 m, what is the centripetal acceleration of the tire?

What is the amount of interest of 75,000 at 3.45% per year, at the end of 12 years and 6 months?

Consider the relation R defined on the set of positive integers as (x,y) ∈ R if x divides y. Choose all the true statements. R is reflexive. R is symmetric. R is antisymmetric. R is transitive. R is a partial order. R is a total order. R is an equivalence relation.

3(4×-1)-2(×+3)=7(×-1)+2

A company is wondering whether to invest £18,000 in a project which would make extra profits of £10,009 in the first year, £8,000 in the second year and £6,000 in the third year. It’s cost of capital is 10% (in other words, it would require a return of at least 10% on its investment). You are required to evaluate the project.

A brass cube with an edge of 3 cm at 40 °C increased its volume to 27.12 cm3. What is the final temperature that achieves this increase?