Pecos Manufacturing has just issued a 15-year, 15% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years. a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity. b. All else equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? Explain in light of the following graph: a. (1) The value of the bond with 15 years to maturity is $ (enter your response here) (Round to the nearest cent.)
Pecos Manufacturing has just issued a 15-year, 15% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years. a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity. b. All else equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? Explain in light of the following graph: a. (1) The value of the bond with 15 years to maturity is $ (enter your response here) (Round to the nearest cent.)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 9P: Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both...
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Pecos Manufacturing has just issued a 15-year, 15% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years.
a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity.
b. All else equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? Explain in light of the following graph:
a. (1) The value of the bond with 15 years to maturity is $ (enter your response here) (Round to the nearest cent.)
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