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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of return is 10 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return
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c. Explain the implications of your answers in part (b) as
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required rate of return is 11 percent. a. Calculate the value of
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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...
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