Assuming that the current interest rate is 2 percent, compute the present value
ID: 2817853 • Letter: A
Question
Assuming that the current interest rate is 2 percent, compute the present value of a five-year, 5 percent coupon bond with a face value of $20,000. What happens when the interest rate goes to 3 percent? What happens when the interest rate goes to 1 percent? Instructions: Enter your responses rounded to the nearest penny (two decimal places). PV at an interest rate of 2%-$ 1811452 PV at an interest rate of 3%-$ 1725218 The present value alls when the interest rate rises to 3 percent. PV at an interest rate of 1%-$1902931 The present value rises when the interest rate falls to 1 percent.Explanation / Answer
1) Present value at an interest rate of 2% = 18114.62
2) Present value at an interest rate of 3% = 17252.18
The present value falls when interest rate rises to 3%
3) present value at an interest rate of 1% = $19029.31
The present value rises when the interest rate falls to 1%
year cash flows Discount factor present value 3% 2% 1% 3% 2% 1% 0 0 1 1 1 1 0 0.970874 0.980392 0.990099 2 0 0.942596 0.961169 0.980296 3 0 0.915142 0.942322 0.97059 4 0 0.888487 0.923845 0.96098 5 20000 0.862609 0.905731 0.951466 17252.17569 18114.6162 19029.31 (20000*0.862609) (20000*0.905731) (20000*.951466)