(Bond valuation relationships) A bond of Telink Corporation pays $110 in annual interest, with a $1,000 par value. The bonds mature in 25 years. The market's required yield to maturity on a comparable-risk bond is 10 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 14 percent or (ii) decreases to 4 percent? c. Interpret your findings in parts a and b. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 10 percent? $ (Round to the nearest cent.) b. (i) What is the value of the bond if the market's required yield to maturity on a comparable risk bond increases to 14 percent? $ (Round to the nearest cent.) b. (ii) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 4 percent? $ (Round to the nearest cent.) 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 ; by contrast, an increase in interest rates will cause the value to (Select from the drop-down menus.) Also, based on the answers in part b, if the yield to maturity (current interest rate): increase equals the coupon interest rate, the bond will sell at be unchanged exceeds the bond's coupon rate, the bond will sell at ; and decrease is less than the bond's coupon rate, the bond will sell at (Select from (Bond valuation relationships) A bond of Telink Corporation pays $110 in annual interest, with a $1,000 par value. The bonds mature in 25 years. The market's required yield to maturity on a comparable-risk bond is 10 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (1) increases to 14 percent or (l) decreases to 4 percent? c. Interpret your findings in parts a and b. a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 10 percent? $(Round to the nearest cent.) b. (i) What is the value the bond if the market's required yield to maturity on a comparable risk bond increases to 14 percent? $(Round to the nearest cent.) b. (ii) What is the value of the bond if the market's required yield to maturity on a comparable risk bond decreases to 4 percent? $(Round to the nearest cent.) 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 Vi by contrast, an increase in interest rates will cause the value to (Select from the drop-down menus.) 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 is less than the bond's coupon rate, the bond will sell at Vand (Select from the drop-down menus.) par a discount Enter your answer in each of the answer boxes. a premium
