D Corporation has three bonds outstanding. All three have a coupon rate of 9 percent and a

Question:

D Corporation has three bonds outstanding. All three have a coupon rate of 9 percent and a $1000 par value. The first bond has one year left to maturity. The second bond has 4 years left to maturity. The last bond has 8 years left to maturity. Assume for simplicity that the market rate for all three bonds is now 6 percent.

1. What is the value for the first bond with one year left to maturity?

2. What is the value for the second bond with four years left to maturity?

3. What is the value for the first bond with eight years left to maturity?

4. What can you say about the maturity of the bond and the relationship between the coupon and market rate of interest? In an environment of increasing interest rates which bonds will decrease in value the most?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...