(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 5 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond B-a bond with 9 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond C-a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 12 percent per year compounded semiannually? b. 5 percent per year compounded semiannually? c. 16 percent per year compounded semiannually? d. What observations can you make about these results? a. If the market discount rate were 12 percent per year compounded semiannually, the value of BondA is $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond Bis $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond C is $ 1,000. (Round to the nearest cent.) b. If the market discount rate were 5 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 5 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond B-a bond with 9 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. Bond C-a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 12 percent per year compounded semiannually? b. 5 percent per year compounded semiannually? c. 16 percent per year compounded semiannually? d. What observations can you make about these results? a. If the market discount rate were 12 percent per year compounded semiannually, the value of BondA is $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond Bis $ 1,000. (Round to the nearest cent.) If the market discount rate were 12 percent per year compounded semiannually, the value of Bond C is $ 1,000. (Round to the nearest cent.) b. If the market discount rate were 5 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
Related questions
Question
100%
On a Financial Calculator
N=10,IY=6,PMT=25,FV=1,000 PV =1000
5X2=10
12/2=6%
1,000X0.05X0.5=25
What am I doping wrong?
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 5 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
Bond B-a bond with 9 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
Bond C-a bond with 17 years left to maturity that has an annual coupon interest rate of 12 percent, but the interest is paid semiannually.
What would be the value of these bonds if the market discount rate were
a. 12 percent per year compounded semiannually?
b. 5 percent per year compounded semiannually?
c. 16 percent per year compounded semiannually?
d. What observations can you make about these results?
a. If the market discount rate were 12 percent per year compounded semiannually, the value of Bond A is $ 1,000. (Round to the nearest cent.)
If the market discount rate were 12 percent per year compounded semiannually, the value of Bond B is $ 1,000 . (Round to the nearest cent.)
If the market discount rate were 12 percent per year compounded semiannually, the value of Bond C is $ 1,000. (Round to the nearest cent.)
b. If the market discount rate were 5 percent per year compounded semiannually, the value of Bond A is S. (Round to the nearest cent.)
Expert Solution
Step 1
Value of a bond:
Value of a bond is the present value of the future cash flows discounted at a required rate of return. Future cash flows include coupon amount and face value of the bond.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning