Question
What is the value of a 10-year, PKR 100,000 par value bond with a 12% annual coupon if its required rate of return is 14%?
What is the value of a 10-year, PKR 100,000 par value bond with a 12% annual coupon if its required rate of return is 14%? e. (1) What would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 5 percentage points, causing investors to require a 19% return? Would we now have a discount or a premium bond? (2) What would happen to the bonds value if inflation fell and Kd (Cost of Debt) declined to 7%? Would we now have a premium or a discount bond? (3) What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%?
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