Question
In: Finance
You own a bond that pays $120 in annual interest, with a $1 comma 000 par...
You own a bond that pays $120 in annual interest, with a $1 comma 000 par value. It matures in 15 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 that the bond matures in 3 years instead of 15 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
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(Bond valuation) You own a bond that pays $120 in annual interest,
with a $1,000 par value. It matures in 15 years. Your requires rate
of return is 10 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 8 percent?
c. Explain the implications of your answers in part (b) as
they relate to interest rate risk, premium bonds, and...
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(Bond valuation ) You own a bond that pays $120 in annual interest, with a $1,000...
(Bond valuation ) You own a bond that pays $120 in annual
interest, with a $1,000 par value. It matures in 10 years. Your
required rate of return is 11 percent. a. Calculate the value of
the bond. b. How does the value change if your required rate of
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par value. It matures in 15 years. Your required rate of return is
7%.
Ba: Calculate the value of the bond.
Bb: How does the value change if your required
rate of return (i) increases to 9% or (ii) decreases to 5% ?
Bc: Explain the implications of your answers in
part Bb as they relate to interest rate risk, premium bonds, and
discount...
Bonds valuation You own a bond that pays 70$ in annual interest, with a 1 000$...
Bonds valuation You own a bond that pays 70$ in annual interest,
with a 1 000$ par value. It matures in 15 years. Your required rate
of return is 7%. Ba: Calculate the value of the bond. Bb: How does
the value change if your required rate of return (i) increases to
9% or (ii) decreases to 5% ? Bc: Explain the implications of your
answers in part Bb as they relate to interest rate risk, premium
bonds, and discount...
(Bond valuation relationships) You own a bond that pays $120 in annual interest, with a $1,000...
(Bond valuation relationships) You own a bond that pays
$120 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 8 percent?
c. Explain the implications of your answers in part b as...
(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
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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 $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...
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