(Bond valuation relationships) A bond of Telink Corporation pays $100 in annual interest, with a $1,000 par value. The bonds mature in 30 years. The market's required yield to maturity on a comparable-risk bond is 8 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 (i) increases to 14 percent or (ii) decreases to 6 percent? c. Interpret your findings in parts a and b. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 8 percent? (Round to the nearest cent.) b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to 14 percent? (Round to the nearest cent.) b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 6 percent? (Round to the nearest cent.)
(Bond valuation relationships) A bond of Telink Corporation pays $100 in annual interest, with a $1,000 par value. The bonds mature in 30 years. The market's required yield to maturity on a comparable-risk bond is 8 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 (i) increases to 14 percent or (ii) decreases to 6 percent? c. Interpret your findings in parts a and b. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 8 percent? (Round to the nearest cent.) b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to 14 percent? (Round to the nearest cent.) b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 6 percent? (Round to the nearest cent.)
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) A bond of Telink Corporation pays $100 in annual interest, with a $1,000 par value. The bonds mature in
30 years. The market's required yield to maturity on a comparable-risk bond is 8 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 (i) increases to 14 percent or (ii)
decreases to 6 percent?
c. Interpret your findings in parts a and b.
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 8 percent?
$
(Round to the nearest cent.)
b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to 14 percent?
(Round to the nearest cent.)
b. (ii) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 6 percent?
(Round to the nearest cent.)
c. The change in the value of a bond caused by changing interest rates is called interest-rate risk. Based on the answers in part b, a
; by contrast, an increase in interest rates
decrease in interest rates (the yield to maturity) will cause the value of a bond to
will cause the value to
(Select from the drop-down menus.)
Also, based on the answers in part b, if the yield to maturity (current interest rate):
equals the coupon interest rate, the bond will sell at
exceeds the bond's coupon rate, the bond will sell at
; and
Enter your answer in each of the answer boxes.
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