The discount rate rd is the opportunity cost of capital, Ask an Expert

Management Studies

The discount rate, rd, is the opportunity cost of capital, i.e., the rate that could be earned on alternative investments of equal risk. Rd = r* + IP + LP + MRP + DRP for debt securities. What"s the value of a 10-year, 10% coupon bond if rd = 10%? 0 10% V=? ... What if inflation increases by 3%, causing rd = 13%? When rd rises above the coupon rate, the bond"s value falls below par, so it sells at a discount. What would happen if inflation fell, and rd declined to 7%?

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M9116006

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