a Calculate the value of the bond b. How does the value change if the market's required yield to maturity on a comparable-risk bond () increases to 10 percent or ) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.
a Calculate the value of the bond b. How does the value change if the market's required yield to maturity on a comparable-risk bond () increases to 10 percent or ) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.
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:(Bond valuation relationships) Arizona Public Utilities issued a bond that pays $80 in interest, with a $1,000 par value. It matures in 25 years. The market's required yield to maturity on
a comparable-risk bond is 7 percent.
a: Calculate the value of the bond
b. How does the value change if the market's required yield to maturity on a comparable-risk bond () increases to 10 percent or (4) decreases to 6 percent?
c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.
d. Assume that the bond matures in 5 years instead of 25 years. Recompute your answers in parts a and b
e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.
a. What is the value of the bond if the markets required yield to maturity on a comparable-risk bond is 7 percent?
$1,116.54 (Round to the nearest cent)
b. () What is the value of the bond if the market's required yield to maturity on a comparable-risk bond increases to 10 percent?
$1229.40 (Round to the nearest cent)
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