Reference no: EM131328143
Guided Response: Review several of your classmates’ posts. Respond to at least two classmates by sharing your view of their conclusion. Are there any other factors that you can offer that may explain why the bond is selling at a premium or discount?
Please help with response development for the below posted.
Example: FV n (1 + r) n = $1,000(1.08)-20 = $1,000(0.21455) = $214.55
ABN AMRO BANK NV ABN4403831 Corporate Bond 1.800 09/20/2019 99.789
Interest rate: 5% FVn: $99.789 Maturity: 09/20/1999 - 09/20/2019 Coupon: 1.800
PVo = $99.789(1+r) -20
PVo = $99.789(1+.05) -20
PVo = $99.789(1.05) -20 = $37.609
The bond sells at premium, Why? If the bond is selling below the par value, the bond would be selling at a discount. A bond whose price is above par is selling at a premium. Therefore, the particular bond that I chose sells at a discount (Kent A. Hickman, 2013).
If interest rates are high bond prices are low, and interest rates are low bond prices are high.
Other factors that may influence the value of a bond?
1. Interest Rates
If interest rates are high bond prices are low, if interest rates are low bond prices are high.
2. Inflation
When inflation is up bond prices fall, when inflation down bond prices increase, because increasing inflation eat away the purchasing power of what you can gain on your investment.
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