Question
In: Finance
You own a bond that pays $120 in annual interest, with a $1,000 par value. It...
You own a bond that pays $120 in annual interest, with a $1,000 par value. It matures in
20 years. Your required rate of return is10 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return (1) increases to
16 percent or (2) decreases to
7 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
5 years instead of
20 years. Recompute your answers in part b.
e. Explain the implications of your answers in part d as they relate to interest rate risk, premium bonds, and discount bonds.
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Expert Solution
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jeff jeffy answered 2 years agoRelated Solutions
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yield to maturity on a comparable-risk bond is 11 percent.
a. Calculate the value of the bond.
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a. Calculate the value of the bond.
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