Question
In: Finance
(Bond valuation relationships) You own a bond that pays $ 110 in annual interest, with a...
(Bond valuation relationships) You own a bond that pays $ 110 in annual interest, with a $1,000 par value. It matures in 10 years. The market's required yield to maturity on a comparable-risk bond is 10 percent.
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 10 percent?
(Round to the nearest cent.)
b. (i) What is the value of the bond if the yield to maturity on a comparable-risk bond increases to 14 percent?
(Round to the nearest cent.)
b. (ii) What is the value of the bond if the yield to maturity on a comparable-risk bond decreases to 8 percent?
(Round to the nearest cent.)
c. The change in the value of a bond caused by changing interest rates is called interest-rate risk. Based on the answers in part b,
A decrease in interest rates (the yield to maturity) will cause the value of a bond to: (increase, be unchanged, or decrease)?
By contrast, an increase in interest rates will cause the value to: (increase, be unchanged, or decrease)?
Solutions
jeff jeffy answered 11 months agoRelated Solutions
(Bond valuation relationships) A bond of Telink Corporation pays $110 in annual interest, with a $1,000...
(Bond valuation relationships) A bond of Telink Corporation
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mature in 30 years. The market's required yield to maturity on a
comparable-risk bond is 88 percent.
a. What is the value of the bond if the
market's required yield to maturity on a comparable-risk bond is
88 percent?
(Round to the nearest cent.)
b. (i) What is the value of the bond if the
market's required yield to maturity...
(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
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decreases to 8 percent?
c. Explain the implications of your answers in part b as...
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(Bond valuation relationships) 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...
(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
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...
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....
(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...
(Bond valuation) You own a bond that pays $120 in 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 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...
(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...
(Bond valuation relationships) A bond of Telink Corporation pays $120 in annual interest, with a $1,000...
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pays $120 in annual interest, with a $1,000 par value. The bonds
mature in 25 years. The market's required yield to maturity on a
comparable-risk bond is 8 percent.
a. Calculate the value of the bond.
b. How does the value change if the market's required yield to
maturity on a comparable-risk bond (i) increases to
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Bonds valuation You own a bond that pays 70$ 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...
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