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

80.2K

Verified Solution

Question

Finance

?(Bond valuation?) You are examining three bonds with a parvalue of $1,000 ?(you receive $1,000 at? maturity) and areconcerned with what would happen to their market value if interestrates? (or the market discount? rate) changed. The three bondsare:
Bond A—a bond with 4 years left to maturity that has an annualcoupon interest rate of 8 ?percent, but the interest is paidsemiannually.
Bond B —a bond with 12 years left to maturity that has an annualcoupon interest rate of 8 ?percent, but the interest is paidsemiannually.
Bond C —a bond with 15 years left to maturity that has an annualcoupon interest rate of 8 ?percent, but the interest is paidsemiannually.
What would be the value of these bonds if the market discountrate were:
a. 8 percent per year compounded? semiannually?
b. 6 percent per year compounded? semiannually?
c. 17 percent per year compounded? semiannually?
d. What observations can you make about these? results?

Answer & Explanation Solved by verified expert

3.7 Ratings (509 Votes)

a Value of bonds if discount rate is 8 per year compounded semiannually Bond A Number of years 4 x 2 8 Coupon payment 8 2 4 x 1000 40 Discount Rate 8 2 4 40 1041 40 1042 40 1043 40 1044 40 1045 40 1046 40 1047 40 1048 1000 1048 1000 Bond B Number of years 12 x 2 24 Coupon payment 8 2 4 x 1000 40 Discount Rate 8 2 4 40 1041 40 1042 40 1043 40 1044 40 1045 40 1046 40 1047 40 1048 40 1049 40 10410 40 10411 40 10412 40 10413 40 10414 40 10415 40 10416 40 10417 40 10418 40 10419 40 10420 40 10421 40 10422 40 10423 40 10424 1000 10424 1000 Bond C Number of years 15 x 2 30 Coupon payment 8 2 4 x 1000 40 Discount Rate 8 2 4 40 1041 40 1042 40 1043 40 1044 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member