Bond valuation) You are examining three bonds with a par value of $1,000 (you receive $1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A—a bond with 3 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. Bond B—a bond with 7 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. Bond C—a bond with 20 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were 6 percent per year compounded semiannually? 3 percent per year compounded semiannually? 9 percent per year compounded semiannually? What observations can you make about these results?
(
What would be the value of these bonds if the market discount rate were 6 percent per year compounded semiannually?
3 percent per year compounded semiannually?
9 percent per year compounded semiannually?
What observations can you make about these results?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
