Dinara K. answered • 04/30/20
Tutor
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(129)
Experienced financial analyst with 5+ years experience in Big 4
The present value of a bond is equal to the sum of all Cash flows (all coupons and face value at maturity) discounted at required rate of return.
Using fin calculator we can solve for PV:
pmt=coupon=4.75%*1000=47.5
i=rate=4.95%
FV=1000
n=5
PV---> calculate - 991.33
We also can solve it manually:
PV=47.5/(1+4.95%)^1+47.5/(1+4.95%)^2+47.5/(1+4.95%)^3+47.5/(1+4.95%)^4+(47.5+1000)/(1+4.95%)^5
=991.33
Hope it helped.
John L.
Reason #1, the market yield on 5-year sovereign bond is trading at a higher level than the coupon rate, so the investor can buy it at discount, hold it to maturity and get paid a par. Reason #2, the investor expect the credit spread on Greece sovereign to compress in the future. Since the yield compresses off pure interest and credit components, a compression in Greece credit spread will lower the market required yield on Greece bond. Investor stands to benefit on a mark to market basis on the bond it holds if that happens.
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12/06/20
David N.
So in this instance why will an investor buy Greece's sovereign debt?05/02/20