(Bond

valuation)

You are examining three bonds with a par value of

$1 comma 0001,000

(you receive

$1 comma 0001,000

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 are

Bond

Along dasha

bond with

44

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

88

percent, but the interest is paid semiannually.

Bond

Blong dasha

bond with

99

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

88

percent, but the interest is paid semiannually.

Bond

Clong dasha

bond with

1616

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

88

percent, but the interest is paid semiannually.

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

a.

88

percent per year compounded semiannually?

b.

44

percent per year compounded semiannually?

c.

1616

percent per year compounded semiannually?

d. What observations can you make about these results?

(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 are Bond A a bond with 4 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond B a bond with 9 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. Bond C-a bond with 16 years left to maturity that has an annual coupon interest rate of 8 percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 8 percent per year compounded semiannually? b. 4 percent per year compounded semiannually? c. 16 percent per year compounded semiannually? d. What observations can you make about these results