Maryland Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 8.39 percent. The current market rate for similar securities is 11.54 percent. a. What is the current market value of one of these bonds? (Round intermediate calculations to 2 decimal places, e.g. 1.25 and final answer to 2 decimal places, e.g. 15.25.) Current market value b. What will be the bond's price if rates in the market (i) decrease to 9.54 percent or (ii) increase to 13.54 percent? (Round intermediate calculations to 2 decimal places, eg. 1.25 and final answer to 2 decimal places, e.g. 15.25.) (1) Decrease to 9.54 percent (ii) Increase to 13.54 percent c. How do the interest rate changes affect premium bonds and discount bonds? Bonds, in general, Decrease or Increase in price when interest rates go up. When interest rates decrease, bond prices Increase or Decrease

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
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Maryland Department of Transportation has issued 25-year bonds that make semiannual coupon
payments at a rate of 8.39 percent. The current market rate for similar securities is 11.54 percent.
a. What is the current market value of one of these bonds? (Round intermediate calculations to 2
decimal places, e.g. 1.25 and final answer to 2 decimal places, e.g. 15.25.)
Current market value
b. What will be the bond's price if rates in the market (i) decrease to 9.54 percent or (ii) increase to
13.54 percent? (Round intermediate calculations to 2 decimal places, eg 1.25 and final
answer to 2 decimal places, e.g. 15.25.)
(i) Decrease to 9.54 percent
(ii) Increase to 13.54 percent
c. How do the interest rate changes affect premium bonds and discount bonds?
Bonds, in general, Decrease or Increase in price when interest rates go up. When interest rates
decrease, bond prices Increase or Decrease
d. Suppose the bond were to mature in 12 years. What will be the bond's price if rates in the market
(1) decrease to 9.54 percent or (ii) increase to 13.54 percent? (Round intermediate calculations to
2 decimal places, eg 1.25 and final answer to 2 decimal places, e.g. 15.25.)
(1) Bond's price if rate decrease to 9.54 percent
(ii) Bond's price if rate increase to 13.54 percent
Transcribed Image Text:Maryland Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 8.39 percent. The current market rate for similar securities is 11.54 percent. a. What is the current market value of one of these bonds? (Round intermediate calculations to 2 decimal places, e.g. 1.25 and final answer to 2 decimal places, e.g. 15.25.) Current market value b. What will be the bond's price if rates in the market (i) decrease to 9.54 percent or (ii) increase to 13.54 percent? (Round intermediate calculations to 2 decimal places, eg 1.25 and final answer to 2 decimal places, e.g. 15.25.) (i) Decrease to 9.54 percent (ii) Increase to 13.54 percent c. How do the interest rate changes affect premium bonds and discount bonds? Bonds, in general, Decrease or Increase in price when interest rates go up. When interest rates decrease, bond prices Increase or Decrease d. Suppose the bond were to mature in 12 years. What will be the bond's price if rates in the market (1) decrease to 9.54 percent or (ii) increase to 13.54 percent? (Round intermediate calculations to 2 decimal places, eg 1.25 and final answer to 2 decimal places, e.g. 15.25.) (1) Bond's price if rate decrease to 9.54 percent (ii) Bond's price if rate increase to 13.54 percent
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