Question
In: Finance
You own a bond that pays $100 in annual interest, with a $1,000 par value. It...
You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 12 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return (1) increases to 14 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 bonds, and discount bonds.
d. Assume that the bond matures in 3 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.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You own a bond that pays $100 in annual interest, with a$1,000 par value. It...
You own a bond that pays $100 in annual interest, with a
$1,000 par value. It matures in 10 years. Your required rate of
return is 11 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...
You own a bond that pays $100 in annual interest, with a $1,000 par value. It...
You own a bond that pays $100 in annual interest, with a $1,000
par value. It matures in 15 years. The market's required yield to
maturity on a comparable-risk bond is 12 percent.
a.??Calculate the value of the bond.
b.??How does the value change if the yield to maturity on a?
comparable-risk bond? (i) increases to
15
percent or? (ii) decreases to
8
?percent?
c.??Explain the implications of your answers in part b as they
relate to? interest-rate risk, premium?...
You own a bond that pays $100 in annual interest, with a $1,000 par value. It...
You own a bond that pays $100 in annual 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 11 percent.
a. Calculate the value of the bond.
b. How does the value change if the yield to maturity on a
comparable-risk bond (i) increases to 16 percent or (ii)
decreases to 7 percent?
c. Explain the implications of your answers in part b as they
relate to...
(Bond valuation) You own a bond that pays $100 in annual interest, with a $1,000 par...
(Bond valuation) You own a bond that pays $100 in annual
interest, with a $1,000 par value. It matures in 20 years. Your
required rate of return is 12 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return
(1) increases to 14 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...
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 15 years. The market's required
yield to maturity on a comparable-risk bond is 10 percent.
a. Calculate the value of the bond.
b. How does the value change if the yield to maturity on
a comparable-risk bond (i) increases to 14 percent or (ii)
decreases to 8 percent?
c. Explain the implications of your answers in part b as
they relate to...
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....
You own a bond that pays $110 in annual interest, with a $1,000 par value. It...
You own a bond that pays $110 in annual interest, with a
$1,000 par value. It matures in 20 years. Your required rate of
return is 12 percent. a. Calculate the value of the bond. b. How
does the value change if your required rate of return (1)
increases to 14 percent or (2) decreases to 8 percent? c. Explain
the implications of your answers in part (b) as they relate to
interest rate risk, premium bonds, and discount bonds....
You own a bond that pays $100 in annual interest, with a $1000 par value. It...
You own a bond that pays $100 in annual interest, with a
$1000 par value. It matures in 15 years. The market's required
yield to maturity on a comparable-risk bond is 12 percent.
a. Calculate the value of the bond. b. How does the value change
if the yield to maturity on a comparable-risk bond (i) increases
to 15 percent or (ii) decreases to 8 percent? c. Explain the
implications of your answers in part b as they relate to...
You own a bond that pays $100 in annual interest, with a $1000 par value. It...
You own a bond that pays $100 in annual interest, with a $1000
par value. It matures in 20 years. The market's required yield to
maturity on a comparable-risk bond is 11 percent.
A. Calculate the value of the bond.
B. How does the value change if the yield to maturity on a
comparable-risk bond (i)increase to 14% or (ii) decreases to
6%?
C. Explain the implications of your answers in part b as they
relate to interest rate risk,...
(Bond valuation) You own a bond that pays $120in annual interest, with a $1,000 par...
(Bond valuation) You own a bond that pays $120
in annual interest, with a $1,000 par value. It matures in 10
years. Your required rate of return is 11 percent.a. Calculate the value of the bond.b. How does the value change if your required rate of return (1)
increases to 15 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 bonds, and discount
bonds.d. Assume...
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