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Basic bond valuation
Complex Systems has an outstanding issue of ?$1,000?-par-value bonds with a 11?% coupon interest rate. The issue pays interest annually and has 13 years remaining to its maturity date.
a. If bonds of similar risk are currently earning a rate of return of 8?%, how much should the Complex Systems bond sell for? today?
b. Describe the two possible reasons why the rate on? similar-risk bonds is below the coupon interest rate on the Complex Systems bond.
c. If the required return were at 11?% instead of 8?%, what would be the current value of Complex? Systems' bond? Contrast this finding with your findings in part a and discuss.
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