Question
Red Frog Brewery has $1,000-par-value bonds outstanding with the following characteristics: currently selling at par; 5 years until final maturity; and a 9 percent coupon
Red Frog Brewery has $1,000-par-value bonds outstanding with the following characteristics:
currently selling at par; 5 years until final maturity; and a 9 percent coupon rate
(with interest paid semiannually). Interestingly, Old Chicago Brewery has a very similar
bond issue outstanding. In fact, every bond feature is the same as for the Red Frog
bonds, except that Old Chicagos bonds mature in exactly 15 years. Now, assume that
the markets nominal annual required rate of return for both bond issues suddenly fell
from 9 percent to 8 percent.
a.Which brewerys bonds would show the greatest price change? Why?
b. At the markets new, lower required rate of return for these bonds, determine the per
bond price for each brewerys bonds. Which bonds price increased the most, and by
how much?
kindly solve on msword or paper
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