Question 8

BOND VALUATION - Ch 6 and pages OM 11-14: In 2013 Carnival Cruise Lines decided to sell some new bonds (something about fixing a big ship). They sold the bonds for $1,000 (face value) with a 20 year maturity and an 8% coupon. Two years have passed. Interest rates on similar bonds have declined to 5%. If an owner attempts to sell her/his Carnival bond bought for $1,000 in 2013, what should they expect to receive for it in the secondary market?

	-	They will sell if for approximately $1,351, at a discount.
	-	They will sell if for approximately $351, at a discount.
		- They will sell if for approximately $1,351, at a premium.
		- They will sell if for approximately $351, at a premium.

Question 9

Continuing with question 8 above. Let's say that interest rates stayed at 8% (didn't fall to 5%) and they will stay there for at least the next 5 years. What would be the value of Carnival's bonds in 2016?

		- The value of the bond would be the par value of $1,000.
		- The value of the bond would be doubled at a value of $2,000, a premium.
		- The present value of the bond would be discounted to a premium of $1,100.
		- The value of the bond would be discounted by $1,000.