Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 15% coupon interest rate. The issue pays interest annually and has 20 years remaining to its maturity date. a. If bonds of similar risk are currently earning a rate of return of 9 %, how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond. c. If the required return were at 15 % instead of 9%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.
Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 15% coupon interest rate. The issue pays interest annually and has 20 years remaining to its maturity date. a. If bonds of similar risk are currently earning a rate of return of 9 %, how much should the Complex Systems bond sell for today? b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond. c. If the required return were at 15 % instead of 9%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 15% coupon interest rate. The issue pays interest annually and has 20 years remaining to its maturity date.
a. If bonds of similar risk are currently earning a rate of return of
9 %, how much should the Complex Systems bond sell for today?
b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.
c. If the required return were at 15 % instead of 9%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.
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