?(Bond valuation?) You own a bond that pays ?$100 in annual? interest, with a ?$1,000 par...

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?(Bond valuation?) You own a bond that pays ?$100 in annual?interest, with a ?$1,000 par value. It matures in 20 years. Yourrequired rate of return is 12 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return?(1) increases to 14 percent or? (2) decreases to 7 ?percent?
c. Explain the implications of your answers in part ?(b?) asthey relate to interest rate? risk, premium? bonds, and discountbonds.
d. Assume that the bond matures in 4 years instead of 20 years.Recompute your answers in part ?(b?).
e. Explain the implications of your answers in part ?(d?) asthey relate to interest rate? risk, premium? bonds, and discountbonds.

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4.3 Ratings (737 Votes)

Coupon 100 Par value 1000 Required rate 12 a Value of the bond PV of Coupons PV of Par Value 10011122012 100011220 85061 b At rate of 14 Value of the bond PV of Coupons PV of Par Value 10011142014100011420 73507 See Answer

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?(Bond valuation?) You own a bond that pays ?$100 in annual?interest, with a ?$1,000 par value. It matures in 20 years. Yourrequired rate of return is 12 percent.a. Calculate the value of the bond.b. How does the value change if your required rate of return?(1) increases to 14 percent or? (2) decreases to 7 ?percent?c. Explain the implications of your answers in part ?(b?) asthey relate to interest rate? risk, premium? bonds, and discountbonds.d. Assume that the bond matures in 4 years instead of 20 years.Recompute your answers in part ?(b?).e. Explain the implications of your answers in part ?(d?) asthey relate to interest rate? risk, premium? bonds, and discountbonds.