Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 4 percent? c. Interpret your finding in parts a and b.
Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 4 percent? c. Interpret your finding in parts a and b.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 26P
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Question
(Bond valuation relationships) A bond of Visador Corporation pays
$70
in annual interest, with a
$1,000
par value. The bonds mature in
18
years. The market's required yield to maturity on a comparable-risk bond is
8.5
percent.a. Calculate the value of the bond.
b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to
12
percent or (ii) decreases to
4
percent?c. Interpret your finding in parts a and
b.
Question content area bottom
Part 1
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is
8.5
percent?$enter your response here
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