Question
Complex Systems has an outstanding issue of $1000-par-value bonds with a 16% coupon interest rate. The issue pays interest annually and has 16 years remaining
Complex Systems has an outstanding issue of $1000-par-value bonds with a 16% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.
a) if bonds of similar risk are currently earning a 14% rate of return, how much should the complex system bond sell for today?
b) Describe the 2 possible reasons why the rate on similar-risk bond is below the coupon interset rate on the Complex System bond. (pick 1-4)
1.Since Complex Systems bonds were issued, there may have been a change in the supply-demand relationship for money or shift in the inventors attitudes towards the firm.
2.Since Complex Systems' bonds were issued, there may have been a change in the number of bonds available or change in the coupon interest rate.
3.Since Complex Systems bonds were issued, there may have been a shift in the supply-demand relationship for koney or a change in the risk towards the firm
4.Since Complex Systems bonds were issued there may have been a shift in the supply demand relationship for their product or a change in the risk towards loans
c ) If the required return were at 16% instead of 14%, what would the current value of Complex System bond be? Contrast this findings with your finds in the part a and discuss.
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