Calculate the present value of coupon bond

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1. Calculate the present value of a $1,000 zero-coupon bond with five years to maturity if the yield to maturity is 6%.

2. A lottery claims its grand prize is $10 million, payable over 20 years at $500,000 per year. If the first payment is made immediately, what is this grand prize really worth? Use an interest rate of 6%.

3. Consider a bond with a 7% annual coupon and a face value of $1,000. Complete the following table.

Year to Maturity

Yield to Maturity

Current Price

3

5

 

3

7

 

6

7

 

9

7

 

9

9

 

What relationships do you observe between maturity and discount rate and the current price?

Reference no: EM13535430

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