Bond Valuation

Lahey Industries has a $1,000 par value bond with an 8% coupon interest rate outstanding. The bond has 12 years remaining to its maturity date.

a)If interest is paid annually what is the value of the bond when the required rate of return is

(i)5 percent

(ii)10 percent?

b)Indicate for each case in (a) whether the bond is selling at a discount, at a premium or at its par value with arguments.

After doing this assignment, you will be able

To apply the basic valuation model to bonds and

Describe the impact of required return and time to maturity on bond values.