Lynn Parsons is considering Investing in either of two outstanding bonds. The bonds both have...
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Lynn Parsons is considering Investing in either of two outstanding bonds. The bonds both have $1000 par values and 8% coupon interest rates and pay annual interest. Bond A has exactly 7 years to maturity, and bond B has 17 years to maturity.
A: Calculate the present value of bond A if the required rate of return is (1) 5% (2) 8% (3) 11%
B: Calculate the present value of bond B if the required rate of return is (1) 5% (2) 8% (3) 11%
C: From your findings in parts a and b, discuss the relationship between time to maturity and changing required returns.
D: If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?
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