Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $60 each six months and has 10 years before maturity. If you purchase this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a nominal annual rate of 14 percent, but you expect the market to require a nominal rate of only 10 percent when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond today?

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The Answer of Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $60 each six months and has 10 years before maturity. If you purchase this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a nominal annual rate of 14 percent, but you expect the market to require a nominal rate of only 10 percent when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond today?

Assume That You Are Considering the Purchase of a $1,000