Personal Finance Problem Bond value and time-Changing required returns Lynn Parsons is considerins investing in either of two outstanding bonds. The bonds both have $1,000 per values and 11% coupon interest rates and pay annual interest. Bond À bas exas". 5 years to maturity, and bond B has 15 years to maturity. * Calculate the value of bond A if the required return is (1) 8%, (211%.e b. Calculate the value of bond B if the required return is (11 8%, (2) 11%. —
Personal Finance Problem Bond value and time-Changing required returns Lynn Parsons is considerins investing in either of two outstanding bonds. The bonds both have $1,000 per values and 11% coupon interest rates and pay annual interest. Bond À bas exas". 5 years to maturity, and bond B has 15 years to maturity. * Calculate the value of bond A if the required return is (1) 8%, (211%.e b. Calculate the value of bond B if the required return is (11 8%, (2) 11%. —
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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Transcribed Image Text:annually. The required return is currently 1470, and the company is
remain at 14% until the bond matures in 15 years.
a. Assuming that the required return does remain at 14% until maturity, find the
value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years,
(5) 3 years, and (6) 1 year to maturity,
b. Plot your findings on a set of "time to maturity (x axis)-market value of bond
(y axis)" axes constructed similarly to Figure 6.5 on page 246.
c.
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
hond value as time moves toward maturity? Explain in light of the graph i
in
Bond value and time-Changing required returns Lynn Parsons is considering
investing in either of two outstanding bonds. The bonds both have 51,000 par
values and 11% coupon interest rates and pay anal interest. Bond A has exact
5 years to maturity, and bond B has 15 years to maturity.
. Calculate the value of bond A if the required return is (1) 8%, (2) 11%. --
b. Calculate the value of bond B if the required return is (1) 8%, (2) 11%, ª-
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