You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable-risk bond is 12 percent. A- value of the bond is 863.78. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 14 percent or (ii) 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.

You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15 years. The market's required yield to maturity on a comparable-risk bond is 12 percent. A- value of the bond is 863.78. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 14 percent or (ii) 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.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

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