a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 10 percent? $enter your response here (Round to the nearest cent.) Part 2 b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to 13 percent? $enter your response here (Round to the nearest cent.) Part 3 b. (ii) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 4 percent? $enter your response here (Round to the nearest cent.)
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 10 percent? $enter your response here (Round to the nearest cent.) Part 2 b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to 13 percent? $enter your response here (Round to the nearest cent.) Part 3 b. (ii) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 4 percent? $enter your response here (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 24E
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Question
Question content area top
Part 1
(Bond valuation relationships) A bond of Telink Corporation pays
$120
in annual interest, with a
$1,000
par value. The bonds mature in
15
years. The market's required yield to maturity on a comparable-risk bond is
10
percent.a. Calculate the value of the bond.
b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to
13
percent or (ii) decreases to
4
percent?c. Interpret your findings in parts a and
b.
Question content area bottom
Part 1
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is
10
percent?$enter your response here
(Round to the nearest cent.)Part 2
b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to
13
percent?$enter your response here
(Round to the nearest cent.)Part 3
b. (ii) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to
4
percent?$enter your response here
(Round to the nearest cent.)Part 4
c. The change in the value of a bond caused by changing interest rates is called interest-rate risk. Based on the answers in part
;
by contrast, an increase in interest rates will cause the value to
.
(Select from the drop-down menus.)
b,
a decrease in interest rates (the yield to maturity) will cause the value of a bond to
▼
increase
be unchanged
decrease
▼
increase
be unchanged
decrease
Part 5
Also, based on the answers in part
b,
if the yield to maturity (current interest rate):equals the coupon interest rate, the bond will sell at
;
▼
par
a discount
a premium
exceeds the bond's coupon rate, the bond will sell at
;
and
▼
par
a discount
a premium
is less than the bond's coupon rate, the bond will sell at
.
(Select from the drop-down menus.)
▼
par
a discount
a premium
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