1. How is a bonds value determined? What is the value of a 10-year, $1,000 par value bond with a 10% annual coupon if its required return is 10%?
2. What is the value of a 13% coupon bond that is otherwise identical to the bond described in question 4? Would we now have a discount or a premium bond?
3. What is the value of a 7% coupon bond with these characteristics? Would we now have a discount or premium bond?
4. What would happen to the values of the 7%, 10%, and 13% coupon bonds over time if the required return remained at 10%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N; then, change (override) N to see what happens to the PV as it approaches maturity.)
5. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887.00? What is the yield on the same bond if it sells for $1,134.20?