Question

Five years ago, you purchased a $1,000 corporate bond issued by general electric. The interest rate for the bond was 8 percent. Today comparable bonds are paying 9.5 percent.
a. What is the approximate market value in dollars for which you could sell your general electric bond? (do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

The market value of share is $842.1.

Value of corporate bond = $1000 (Given)

Interest rate = 8% (Given)

Current interest rate = 9.5% (Given)

Calculating the face value of corporate bond -

= $1,000 face value x 8%

= 1000 x 8/100

= $80

Calculating the approximate market value -  

= $80 / 9.5%

= 80 × 100 / 9.5

= 8000 / 9.5

= 842.1

Thus, the market value of share is $842.1.