Personal Finance 1st Edition by Jack R. Kapoor

Exercise 23

Determining Interest and Approximate Bond Value. Assume that three years ago, you purchased a corporate bond that pays 6.10 percent. The purchase price was $1,000. Also assume that three years after your bond investment, comparable bonds are paying 7.20 percent.

a. What is the annual dollar amount of interest that you receive from your bond investment?

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b. Assuming that comparable bonds are paying 7.20 percent, what is the approximate dollar price for which you could sell your bond?

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c. In your own words, explain why your bond increased or decreased in value.

Step 1 of 3

a)

Compute the market value of the bond:

The face value and the purchase price is $1,000, coupon rate is 6.10% and interest rate is 7.2%.

To find the dollar amount of interest, multiply the face value with the interest rate.

The annual dollar amount of interest received from the investment is $61.