Question
6. Moore Company is about to issue a bond with semiannual coupon payments, a coupon rate of 8%, and a par value of $1,000. The
6. Moore Company is about to issue a bond with semiannual coupon payments, a coupon rate of 8%, and a par value of $1,000. The yield to maturity for this bond is 10%. a. What is the bond price if it matures in five, ten, fifteen, or twenty years? b. What do you notice about the bond price in relationship to the bonds maturity? 7. Addison Company will issue a zero-coupon bond this coming month. The bonds projected yield is 7%. If the par value is $1,000, what is the bonds price using a semiannual convention if a. The maturity is 20 years? b. The maturity is 30 years? c. The maturity is 50 years? d. The maturity is 100 years 8. The Canadian government decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $50 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 6.5%. What should this consol bond sell for in the market? What if the interest rate should fall to 4.5%? Rise to 8.5%? Why does the price go up when interest rates fall? Why does the price go down when interest rates rise?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started