(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000...

(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed.

The three bonds are

Bond Along dash—a bond with 33 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
Bond Blong dash—a bond with 11 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
Bond Clong dash—a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.

What would be the value of these bonds if the market discount rate were
a. 12 percent per year compounded semiannually?
b. 3 percent per year compounded semiannually?
c. 16 percent per year compounded semiannually?
d. What observations can you make about these results?

Solutions

Expert Solution

Additionally in d, you can also see that more is the maturity period, higher or lower is the bond price when YTM is less or more than coupon rate. This implies price of a bond is more sensitive to YTM when maturity of a bond is higher.

jeff jeffy answered 5 months ago

Next > < Previous

Related Solutions

You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity)...

You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A—a bond with 6 years left to maturity that has an annual coupon interest rate of 9 percent, but the interest is paid semiannually. Bond B—a bond with 9 years left to maturity that has an annual coupon interest...

You are examining three bonds with a par value of $1000 (you receive $1 comma 000...

You are examining three bonds with a par value of $1000 (you receive $1 comma 000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A-bond with 6 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond B-bond with 9 years left to maturity that has an annual coupon interest...

(Bond valuation) At the beginning of the year, you bought a $1,000 par value corporate bond...

(Bond valuation) At the beginning of the year, you bought a $1,000 par value corporate bond with an annual coupon rate of 11 percent and a maturity date of 18 years. When you bought the bond, it had an expected yield to maturity of 9 percent. Today the bond sells for $1,400. a. What did you pay for the bond? b. If you sold the bond at the end of the year, what would be your one-period return on the...

Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is...

Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is the coupon rate and kdis the market cost of debt. A $1,000 par value bond sells for $1,216. It matures in 20 years, has a 14 percent coupon, pays interest semiannually, and can be called in 5 years at a price of $1,100. You think it is likely that interest rates will either remain at current levels or else decline over the next 5...

Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is...

Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is the coupon rate and kdis the market cost of debt. Value a 20yr bond with 14 years to go before maturity. Its par value is 1000, annual coupon is 7.5% and the applicable interest rate is currently 11%. What would be your total rate of return if you sold this bond in one year (a) if Interest rates remained unchanged, (b) Interest rates rose...

Develop a valuation model for a corporate bond with a par value at maturity of $1,000,...

Develop a valuation model for a corporate bond with a par value at maturity of $1,000, a maturity of 20 years, a coupon interest rate of 7%, and a yield to maturity of 4%. The coupons are assumed to be paid semi-annually. In your development and presentation, include a time line showing the relevant cash flows along with all of the steps that allow you to generate the value (price of the bond). Given the problem above, identify how the...

(Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual...

(Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual coupon interest rate is 9 percent and the market's required yield to maturity on a comparable-risk bond is 18 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? *Someone previously answered this with annually = $604.56 and semiannually = $596.89 and the annual number is incorrect*

(Bond valuation) A bond that matures in 11 years has a $1,000 par value. The annual...

(Bond valuation) A bond that matures in 11 years has a $1,000 par value. The annual coupon interest rate is 8 percent and the market's required yield to maturity on a comparable-risk bond is 13 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? a.The value of this bond if it paid interest annually would be $

Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 11% coupon...

Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 11% coupon interest rate. The issue pays interest annually and has 11 years remaining to its maturity date. a. If bonds of similar risk are currently earning a rate of return of 8%, how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond....

Basic bond valuation: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 14% coupon...

Basic bond valuation: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 14% coupon interest rate. The issue pays interest annually and has 13 years remaining to its maturity date. a. If bonds of similar risk are currently earning a rate of return of 11%,how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond. c. ...

Subjects

Question

(Bond valuation​) You are examining three bonds with a par value of ​$1,000 ​(you receive ​$1,000...

Solutions

Expert Solution

Related Solutions

(Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000...