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Midland Utilities has a bond issue outstanding that has an 11 percent coupon rate. The coupons are paid semiannually. The bond issue has 12 years
Midland Utilities has a bond issue outstanding that has an 11 percent coupon rate. The coupons are paid semiannually. The bond issue has 12 years remaining to maturity.
- Find the value of $1,000 of par value of the bond if the required return is: (1) 7 percent, (2) 9 percent, (3) 11 percent, (4) 13 percent, (5) 15 percent.
- Plot your findings in a on a chart where the return is the x axis and the market value of the bond is the y axis.
- Use your findings in a and b to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.
- What two reasons cause the required return to differ from the coupon interest rate?
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