(Bond

valuation)

You are examining three bonds with a par value of

$1,000

(you receive

$1,000

at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds areBond

Aa

bond with

3

years left to maturity that has an annual coupon interest rate of

9

percent, but the interest is paid semiannually.Bond

Ba

bond with

11

years left to maturity that has an annual coupon interest rate of

9

percent, but the interest is paid semiannually.Bond

Ca

bond with

19

years left to maturity that has an annual coupon interest rate of

9

percent, but the interest is paid semiannually.

What would be the value of these bonds if the market discount rate were

a.

9

percent per year compounded semiannually?b.

7

percent per year compounded semiannually?c.

15

percent per year compounded semiannually?

d. What observations can you make about these results?

a. If the market discount rate were

9

percent per year compounded semiannually, the value of Bond A is

$1,000.001,000.00.

(Round to the nearest cent.)If the market discount rate were

9

percent per year compounded semiannually, the value of Bond B is

$