Assume that in March 2019, you bought a zero-coupon bond issued by a municipal government with a face value of $10,000 and a maturity date of March 2023. a) Use a bond-pricing equation to illustrate the market price (the market value) of the zero-coupon bond in March 2020. You just have to write out the equation; you do not have to solve the equation b) Assume that you are thinking about selling the zero-coupon bond in March 2020. Use a bond-pricing equation to illustrate what will determine the actual return that you will have earned on the bond. You just have to write out the equation; you do not have to solve the equation. c) Assume that you end up selling the bond in March 2020 and that the market interest rate on the bond is lower in March of 2020 than it was in March of 2019. Briefly discuss the effects of the decrease in the bond’s interest rate on the actual return that you have earned on the bond..
Assume that in March 2019, you bought a zero-coupon bond issued by a municipal government with a face value of $10,000 and a maturity date of March 2023.
a) Use a bond-pricing equation to illustrate the market price (the market value) of the zero-coupon bond in March 2020. You just have to write out the equation; you do not have to solve the equation
b) Assume that you are thinking about selling the zero-coupon bond in March 2020. Use a bond-pricing equation to illustrate what will determine the actual return that you will have earned on the bond. You just have to write out the equation; you do not have to solve the equation.
c) Assume that you end up selling the bond in March 2020 and that the market interest rate on the bond is lower in March of 2020 than it was in March of 2019. Briefly discuss the effects of the decrease in the bond’s interest rate on the actual return that you have earned on the bond..
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