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a. A $1,000 bond has a 7.5 percent coupon and matures after ten years. If current interest rates are 9 percent, what should be the
a. A $1,000 bond has a 7.5 percent coupon and matures after ten years. If current interest rates are 9 percent, what should be the price of the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ b. If after six years interest rates are still 9 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 7 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar. Price of the bond (ten years to maturity): $ Price of the bond (four years to maturity): $ Even though the interest rate is 7 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- v interest payments for a longer period of time
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