Question
The Maryland Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 9.725 percent. The current market rate for
The Maryland Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 9.725 percent. The current market rate for similar securities is 11.7 percent. Assume that the face value of the bond is $1,000.
A) What is the current market value of one of these bonds? (Round intermediate calculations to 2 decimal places, e.g. 1.25 and final answer to 2 decimal places, e.g. 15.25.)
B)What will be the bonds price if rates in the market (i) decrease to 9.70 percent or (ii) increase to 12.7 percent? (Round intermediate calculations to 2 decimal places, e.g. 1.25 and final answers to 2 decimal places, e.g. 15.25.)
C)How do the interest rate changes affect premium bonds and discount bonds? Bonds, in general, (decrease or increase) in price when interest rates go up. When interest rates decrease, bond prices (increase or decrease)
D) Suppose the bond were to mature in 12 years. What will be the bonds price if rates in the market (i) decrease to 9.70 percent or (ii) increase to 12.7 percent? (Round intermediate calculations to 2 decimal places, e.g. 1.25 and final answers to 2 decimal places, e.g. 15.25.)
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