Calculation of Market value of bond at various rates.
Assume a government bond has a face value of $1,000, a coupon of 6 percent, semiannual payments of interest, and a five-year maturity. If the market interest rate for such a bond is 5 percent, how much is the bond worth? How much is it worth at a market rate of 8 percent?
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5% Interest
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Year 1
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Year 2
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Year 3
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Year 4
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Year 5
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$1,000
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6%
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PV =
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8% Interest
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Year 1
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Year 2
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Year 3
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Year 4
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Year 5
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$1,000
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6%
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PV =
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