Question

In: Finance

 Arizona Public Utilities issued a bond that pays​ $80 in​ interest, with a $1,000 par value....

 Arizona Public Utilities issued a bond that pays​ $80 in​ interest, with a $1,000 par value. It matures in 20 years. The​ market's required yield to maturity on a​ comparable-risk bond is 6 percent.

a.  Calculate the value of the bond.

b.  How does the value change if the​ market's required yield to maturity on a​ comparable-risk bond​ (i) increases to 10 percent or​ (ii) decreases to 5 percent?

c.  Explain the implications of your answers in part b as they relate to​ interest-rate risk, premium​ bonds, and discount bonds.

d.  Assume that the bond matures in 15 years instead of 20 years. Recompute your answers in parts a and b.

e.  Explain the implications of your answers in part d as they relate to​ interest-rate risk, premium​ bonds, and discount bonds.

Solutions

Expert Solution


Related Solutions

Arizona Public Utilities issued a bond that pays ​$80 in​interest, with a ​$1,000 par value. It...
Arizona Public Utilities issued a bond that pays ​$80 in​interest, with a ​$1,000 par value. It matures in 30 years. The​market's required yield to maturity on a​ comparable-risk bond is 6 percent. a. Calculate the value of the bond. b. How does the value change if the​ market's required yield to maturity on a​ comparable-risk bond​ (i) increases to 12 percent or​ (ii) decreases to 5 ​percent? c. Explain the implications of your answers in part b as they relate...
PROBLEM: Arizona Public Utilities issued a bond that pays ​$80 in​ interest, with a ​$1,000 par...
PROBLEM: Arizona Public Utilities issued a bond that pays ​$80 in​ interest, with a ​$1,000 par value. It matures in 30 years. The​ market's required yield to maturity on a​ comparable-risk bond is 6 percent. a. Calculate the value of the bond. b. How does the value change if the​ market's required yield to maturity on a​ comparable-risk bond​ (i) increases to 12 percent or​ (ii) decreases to 5 ​percent? c. Explain the implications of your answers in part b...
Arizona Public Utilities issued a bond that pays ​$60 in​ interest, with a ​$1,000 par value....
Arizona Public Utilities issued a bond that pays ​$60 in​ interest, with a ​$1,000 par value. It matures in 30 years. The​ market's required yield to maturity on a​ comparable-risk bond is 8 percent. a.  Calculate the value of the bond. b.  How does the value change if the​ market's required yield to maturity on a​ comparable-risk bond​ (i) increases to 12 percent or​ (ii) decreases to 7 ​percent? c.  Explain the implications of your answers in part b as...
Arizona Public Utilities issued a bond that pays $70 in interest, with a $1000 par value....
Arizona Public Utilities issued a bond that pays $70 in interest, with a $1000 par value. It matures in 25 years. The market's required yield to maturity on a comparable-risk bond is 8%. A. Calculate the value of the bond. B. How does the value change if the market's required yield to maturity on a comparable-risk bond (i)increases to 12 percent or (ii) decreases to 7%? C. Explain the implications of your answers in part b as they relate to...
​(Bond valuation​ relationships)  Arizona Public Utilities issued a bond that pays ​$80 in​ interest, with a...
​(Bond valuation​ relationships)  Arizona Public Utilities issued a bond that pays ​$80 in​ interest, with a ​$1,000 par value. It matures in 30 years. The​ market's required yield to maturity on a​ comparable-risk bond is 7 percent. a.  Calculate the value of the bond. b.  How does the value change if the​ market's required yield to maturity on a​ comparable-risk bond​ (i) increases to 11 percent or​ (ii) decreases to 6 ​percent? c.  Explain the implications of your answers in...
​(Bond valuation​) Kyser Public Utilities issued a bond with a ​$1000 par value that pays ​$80...
​(Bond valuation​) Kyser Public Utilities issued a bond with a ​$1000 par value that pays ​$80 in annual interest. It matures in 20 years. Your required rate of return is 9 percent. a. Calculate the value of the bond. b. How does the value change if your required rate of return​ (1) increases to 12 percent or​ (2) decreases to 6 ​percent? c. Explain the implications of your answers in part ​(b​) as they relate to interest rate​ risk, premium​...
Bond valuation) New Generation Public Utilities issues a bond with a $1000 par value that pays...
Bond valuation) New Generation Public Utilities issues a bond with a $1000 par value that pays $80 in annual interest. It matures in 20 years. Your required rate of return is 7%. a.       Calculate the value of the bond. b.       How does the value change if your required rate of return 1) increases to 10% or 2) decreased to 6%? c.       Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and...
There is a bond that pays $100 per year interest, with a $1,000 par value. It...
There is a bond that pays $100 per year interest, with a $1,000 par value. It matures in 15 years. The market required yield to maturity on a comparable bond is 12%. What is the value of the bond? How does the value change if the yield to maturity on a comparable bond increase to 15%? What if it decreases to 8%. Explain the above questions (part b) with the concepts of interest rate risk, premium bonds and discount bonds....
There is a bond that pays $100 per year interest, with a $1,000 par value. It...
There is a bond that pays $100 per year interest, with a $1,000 par value. It matures in 15 years. The market required yield to maturity on a comparable bond is 12%. What is the value of the bond? How does the value change if the yield to maturity on a comparable bond increase to 15%? What if it decreases to 8%. Explain the above questions (part b) with the concepts of interest rate risk, premium bonds and discount bonds....
a company's bond have a par (face value of 1,000. the bond pays semiannual interest of...
a company's bond have a par (face value of 1,000. the bond pays semiannual interest of $40 and mature in five years. how much would you pay for the bond if you required rate is 10% and how much would you pay if your required rate is 8%
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT