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Sagot :
The approximate market value of a bond value that pays $60 interest each year if comparable interest rates have dropped to 5 is $1,500.
How is the worth of a bond decided?
Supply and demand, credit quality, and length to maturity are the three main factors that affect the price of bonds on the open market. The length of time until a bond matures determines how much interest its owner will get. The face value, or par value, of the bond, is returned to the owner when it matures. If a put or call option is available on the bond, the term to maturity may change.
Given:
Given:
The bond would represent the characteristics of a perpetuity.
PMT/ I = $60/4% = $1,500
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