Homework:Chapter 9 Homework_SP 2022

Question 8, P9-19 (similar to)

Part 1 of 9

HW Score: 15.79%, 3 of 19 points

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Part 1

(Bond valuation relationships)Arizona Public Utilities issued a bond that pays

$70

in interest, with a

$1,000

par value. It matures in

30

years. The market's required yield to maturity on a comparable-risk bond is

8

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

12

percent or (ii) decreases to

7

percent?

c.Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.

d.Assume that the bond matures in

15

years instead of

30

years. Recompute your answers in parts a and

b.

e.Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.

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Part 1

a.What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is

8

percent?