A bank buys bonds with a par value of $25 million for $24,040,000. The coupon rate is 10 percent, and the bonds make annual payments. The bonds mature in four years. The bank wants to sell them in two years and estimates the required rate of return in two years will be 8 percent. What will the market value of the bonds be in two years?

Question

A bank buys bonds with a par value of $25 million for $24,040,000. The coupon rate is 10 percent, and the bonds make annual payments. The bonds mature in four years. The bank wants to sell them in two years and estimates the required rate of return in two years will be 8 percent. What will the market value of the bonds be in two years? ​

Quizplus · Accepted Answer

The market value of the bonds in two years can be calculated using the present value of the remaining cash flows (two coupon payments and the par value) discounted at the required rate of return of 8 percent.

A Bank Buys Bonds with a Par Value of $25