Corporate Finance Doubts 1

anshul.skit
Posts: 1
Joined: Tue Jul 24, 2012 11:25 am

Re: Corporate Finance Doubts 1

Postby anshul.skit » Tue Jul 24, 2012 11:41 am

Since, par value is 1000, we will calculate interest on this as:
=1000[1+(10/200)]^(20*2)
=7039.989

Thus, if I buy this bond for $1000, I will receive $7039.989 after 20 yrs.
That also means, if I buyed this bond for suppose $1100, I would still have the value of this bond after 20 yrs as $7039.989.

Now, Opportunity cost if I sell this bond today and get $849.54 and reinvest it on ongoing market interest rate (say 10%), I'll get:
=849.54(1+.1)^20 .... (Considering annual rate to be 10% remaining same for rest of 20 yrs)
=$5715.28

Hence, the loss would be: 7039.989-5715.28= $1324.78 :)
This is what I understand, hope every concept related to it is covered.
Let me know if anybody has some different view on this.

Tags:


Return to “CFA Level I”



cron

Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.