Question
1, You own a bond that pays $60 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of
1, You own a bond that pays $60 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 6 percent.
a, Value of bond = ??
b, If you required rate of return increases to 10%, what is the value of bond?
c, If you required rate of return decreases to 4% , what is the value of bond?
d, Assume that the bond matures in 3 years instead of 20 years. If the bond required rate of return is 6 percent, bond value=
( If you required rate of return increases to 10%, the bond value = ?)
( If your required rate of return decreases to 4% , the bond value = ??
d,part 2: If you required rate of return increases to 10%, what is the value of bond?
2, You buy the newly issued bond at par value with coupon rate at 6%. One year later, the required rate of return increases to 10%, and you decide to sell the bond,
a, How much are you supposed to sell for 3 years bond?
b, How much are you supposed to sell for 20 years bond?
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