(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 4 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond B-a bond with 11 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond C-a bond with 19 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 8 percent per year compounded semiannually? b. 6 percent per year compounded semiannually? c. 17 percent per year compounded semiannually? d. What observations can you make about these results? a. If the market discount rate were 8 percent per year compounded semiannually, the value of Bond A is $ 1,000.00 (Round to the nearest cent.) If the market discount rate were 8 percent per year compounded semiannually, the value of Bond B is $ 1,000.00 (Round to the nearest cent.) If the market discount rate were 8 percent per year compounded semiannually, the value of Bond C is $ 1,000.00. (Round to the nearest cent.) b. If the market discount rate were 6 percent per year compounded semiannually, the value of Bond A is S. (Round to the nearest cent.)
(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 4 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond B-a bond with 11 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond C-a bond with 19 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 8 percent per year compounded semiannually? b. 6 percent per year compounded semiannually? c. 17 percent per year compounded semiannually? d. What observations can you make about these results? a. If the market discount rate were 8 percent per year compounded semiannually, the value of Bond A is $ 1,000.00 (Round to the nearest cent.) If the market discount rate were 8 percent per year compounded semiannually, the value of Bond B is $ 1,000.00 (Round to the nearest cent.) If the market discount rate were 8 percent per year compounded semiannually, the value of Bond C is $ 1,000.00. (Round to the nearest cent.) b. If the market discount rate were 6 percent per year compounded semiannually, the value of Bond A is S. (Round to the nearest cent.)
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter11: Notes, Bonds, And Leases
Section: Chapter Questions
Problem 17E
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Transcribed Image Text:(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 4 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually.
Bond B-a bond with 11 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually.
Bond C-a bond with 19 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually.
What would be the value of these bonds if the market discount rate were
a. 8 percent per year compounded semiannually?
b. 6 percent per year compounded semiannually?
c. 17 percent per year compounded semiannually?
d. What observations can you make about these results?
G
a. If the market discount rate were 8 percent per year compounded semiannually, the value of Bond A is $ 1,000.00
(Round to the nearest cent.)
(Round to the nearest cent.)
If the market discount rate were 8 percent per year compounded semiannually, the value of Bond B is $ 1,000.00
If the market discount rate were percent per year compounded semiannually, the value of Bond C is $ 1,000.00
(Round to the nearest cent.)
b. If the market discount rate were 6 percent per year compounded semiannually, the value of Bond A is $. (Round to the nearest cent.)
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