Question
A bond of Visador Corporation pays $70 in annual interest, with a $1,000 par value. The bonds mature in 23 years. The market's required yield
A bond of Visador Corporation pays
$70
in annual interest, with a
$1,000
par value. The bonds mature in
23
years. The market's required yield to maturity on a comparable-risk bond is
7.5
percent.
a.What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is
7.5
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
5
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
b,
a decrease in interest rates (the yield to maturity) will cause the value of a bond to
increase
be unchanged
decrease
; by contrast, an increase in interest rates will cause the value to
increase
be unchanged
decrease
. (Select from the drop-down menus.)
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
;
exceeds the bond's coupon rate, the bond will sell at
par
a discount
a premium
; and
is less than the bond's coupon rate, the bond will sell at
par
a discount
a premium
. (Select from the drop-down menus.)
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