Bond value and time—Constant required returns Pecos Manufacturing has just issued a 15-year, 14% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years. a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity. b. All else remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity?
Bond value and time—Constant required returns Pecos Manufacturing has just issued a 15-year, 14% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years. a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity. b. All else remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Pecos Manufacturing has just issued a 15-year, 14% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years.
a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity.
b. All else remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity?
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