If a number entered in an unformatted cell is too long to be displayed in the cell, what will be displayed? ####### scientific n
1 answer:
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Answer:
To find the value of bond, let's use the formula:
Value of bond = price of bond / (1 + interest rate)ⁿ
Here n represents number of years.
At 7% interest rate:
Value of bond A =
Value of bond B =
At 14% interest rate:
Value of bond A =
Value of bond B =
The difference between bond A at 7% and 14%:
$582.09 - $2067.35 = -$1485.26
The difference between bond B at 7% and 14%:
$2157.95 - $4066.79 = -$1908.84
% decrease between bond A and B:
Therefore, from the above calculations, we have the following:
Suppose the interest rate is 7%, Using the rule of 70, the value of Bond A is approximately $2067.35, and the value of Bond B is approximately $4066.79 .
Now suppose the interest rate increases to 14 percent.
Using the rule of 70, the value of Bond A is now approximately $528.09 , and the value of Bond B is approximately $2157.95 .
Comparing each bond's value at 7 percent versus 14 percent, Bond A's value decreases by a 22.19 percentage than Bond B's value.
The value of a bond decreases when the interest rate increases, and bonds with a longer time to maturity are more sensitive to changes in the interest rate.