Question
PT MOON currently has 2 bonds in circulation, namely bonds issued by PT GALAXY, Tbk and PT STAR, Tbk. The two bonds pay annual interest
PT MOON currently has 2 bonds in circulation, namely bonds issued by PT GALAXY, Tbk and PT STAR, Tbk. The two bonds pay annual interest of IDR 1,000,000,- each for PT GALAXY, Tbk bonds and IDR 10,000,000,- for PT STAR, Tbk bonds. PT GALAXY, Tbk bonds will mature in 5 years and PT STAR bonds will mature in 3 years. Question: a) What is the current value of each of these bonds if the current interest rates are: 1) 6%, 2) 10%, and 3) 12%.It is assumed that bond interest is paid annually. b) What is the value of each bond assuming interest payments 2 times a year? c) Why do prices of bonds with longer maturities (5 years) fluctuate more than bonds with shorter maturities (3 years)? Explain.
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