no0 Dond nas a 6.5 percent even years rcurrent interest rates are 10 price bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. b. If after four years interest rates are still 10 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar. c. Even though interest rates did not change in a and b, why did the price of the bond change? The price of the bond with the longer term is -Select- v than the price of the bond with the shorter term as the investors will collect the -Select- v interest payments and receive the principal within a longer period of time. d. Change the interest rate in a and b to 4 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar. Price of the bond (eleven years to maturity): $ Price of the bond (seven years to maturity): $ Even though the interest rate is 4 percent in both calculations, why are the bond prices different? The price of the bond with the longer term is -Select- v than the price of the bond with the shorter term as the investors will collect the -Select- interest payments for a longer period of time.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.2E

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Question

no0 Dond nas a 6.5 percent
even years
rcurrent interest rates are 10
price
bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.
b. If after four years interest rates are still 10 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond
pays interest annually. Round your answer to the nearest dollar.
c. Even though interest rates did not change in a and b, why did the price of the bond change?
The price of the bond with the longer term is -Select- v than the price of the bond with the shorter term as the investors will collect the -Select- v interest payments and
receive the principal within a longer period of time.
d. Change the interest rate in a and b to 4 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.
Price of the bond (eleven years to maturity): $
Price of the bond (seven years to maturity): $
Even though the interest rate is 4 percent in both calculations, why are the bond prices different?
The price of the bond with the longer term is -Select- v than the price of the bond with the shorter term as the investors will collect the -Select-
interest payments for a
longer period of time.

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Calculate value of Bond as below:

Resultant table:

Hence, price is $773.

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