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Bond Pricing

If someone pays you 1 cent every day for the rest of eternity, is that worth infinity dollars?

Challenge Quizzes

Level 1

         

Find the single percentage discount which is equivalent to a discount of 20% followed by a 30% discount.

If your answer is 10%, enter 10.

How much do you have to place in a bank which pays 1% interest per annum (compounded annually), so that you will have $100 in it in 10 years?

Image credit: Wikipedia ©Raimond Spekking / CC BY-SA 4.0

You own a bond that will pay 10% per year for the next 10 years, on a principal of $1000. The prevailing discount rate is 10% throughout.

What is the bond worth now?

A 5 year, 5% coupon $1000 treasury bond yielding 5% is currently trading for $995. What trade would you want to execute?

Note: Ignore transaction costs and interest rates.

You want to value stock dividends that are projected to grow forever at a constant rate \(g\), using a discount rate of \( r \). If the dividend in the first period is \(D\), what is the value of this cash flow?

Assume that \( r > g \).

Image credit: Wikipedia Statetrustgroupllc
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