ACME Utilities has a bond issue outstanding that will mature to its $ 1,000 par value in 18 years. The bond has a coupon interest rate of 11% and pays interest annually.

a. Find the value of the bond if the required return is (1) 11%, (2) 15%, and (3) 8%.

b. Use your finding in part a and the graph here, (see below), to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.

c. What two possible reasons could cause the required return to differ from the coupon interest rate?

. (1) The value of the bond, if the required return is 11%, is $ _________.(Round to the nearest cent.)

. (1) The value of the bond, if the required return is 15%, is $ _________.(Round to the nearest cent.)

. (1) The value of the bond, if the required return is 8%, is $ _________.(Round to the nearest cent.)

B. see chart

C. What two possible reasons could cause the required return to differ from the coupon interest rate?

bond contract has changed

Tax rate has changed

costs of funds has changed

firms risk has changed

Bond Value (5) 1,500 400- 1,300 2 1.200 1.100 1,000 900- 800 700 600- 500 6 9 10 11 12 13 14 15 Required return (9)