Question
The Sheridan Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.125 percent. The current market rate for
The Sheridan Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.125 percent. The current market rate for similar securities is 11.5 percent. Assume that the face value of the bond is $1,000.
A. What will be the bonds price if rates in the market (i) decrease to 9.50 percent or (ii) increase to 12.5 percent? (Round answers to 2 decimal places, e.g. 15.25.)
Bond's price | |||
(i) | Decrease to 9.50 percent | $ | |
(ii) | Increase to 12.5 percent | $ |
B. How do the interest rate changes affect premium and discount bonds?(Complete the sentence): Bonds, in general, ____ in price when interest rates go up. When interest rates decrease, bond prices ____
C. Suppose the bond were to mature in 12 years. What will be the bond's price if rates in the market (i) decrease to 9.50 percent or (ii) increase to 12.5 percent?
(i). Bond prices if rates decreases to 9.50 percent?: $
(ii). Bond prices if rates increases to 12.5 percent?: $
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