Question 6-19

Bond value and time changing required return

Lynn Pityana is considering investing in either of two outstanding bonds.

The bonds both have R1,000 par values and 11% coupon interest rates and pay annual interest

Bond A has exactly five years to maturity and Bond B has 15 years to maturity

Calculate the value of bond A if the required return is (1) 8% and (2) 11% and (3) 14%

Calculate the value of bond B if the required return is (1) 8% (2) 11% and (3) 15%

From your findings in parts A and B complete the following table and discuss the relationship between time to maturity and changing required returns