Reference no: EM132444236
Bond Valuation and Changes in Maturity and Required Returns
Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.
Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 8%. At what price would the bonds sell? Round the answer to the nearest cent.
$1,081.11
Suppose that 2 years after the initial offering, the going interest rate had risen to 15%. At what price would the bonds sell? Round the answer to the nearest cent.
$828.40
Suppose that 2 years after the issue date (as in part a) interest rates fell to 8%. Suppose further that the interest rate remained at 8% for the next 8 years. What would happen to the price of the bonds over time?
I. The price of the bond will decline, approaching $1,000 at the maturity date.
II. The price of the bond will remain the same.
III. The price of the bond will rise, approaching $1,000 at the maturity date.
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