Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000.a. Suppose that 1 year later the going market interest rate drops to 6%. What is thenew price of the bonds, assuming they now have 19 years to maturity? b. Suppose that 1 year after issue, the going market interest rate is 10% (rather than6%). What would the price have been?

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 21P: Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an...
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Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000.
a. Suppose that 1 year later the going market interest rate drops to 6%. What is the
new price of the bonds, assuming they now have 19 years to maturity? 
b. Suppose that 1 year after issue, the going market interest rate is 10% (rather than
6%). What would the price have been?

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