Question

Apple issues a $1,000 5-year bond that pays a 9% interest rate. Assuming semi-annual interest payments, what is the value of this bond if market rates fall to 7% for bonds of this type?.

Answer 1

The value of bond if market rates fall to 7% for bonds is $824.41.

What is the value of the bond?

In order to determine the value of the bond, determine the present value of the bond. Present value is the sum of dicounted cash flows.

Present value of the bond:

• Cash flows each year from period 1 to 10 = 9%/2 x 1000 = $45
• Cash flow in year 10 = $1000
• I = 7%
• Value of the bond = $824.41

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