Bond value and time—constant required returns

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Reference no: EM131456087

Bond value and time—Constant required returns

Pecos Manufacturing has just issued a 15?-year, 11?% coupon interest? rate, ?$1,000?-par bond that pays interest annually. The required return is currently16?%, and the company is certain it will remain at 16?% until the bond matures in 15 years.

a. Assuming that the required return does remain at 16?% until? maturity, find the value of the bond with? (1) 15 ?years, (2) 12? years, (3) 9? years, (4) 6? years, (5) 3? years, (6) 1 year to maturity.

b. All else remaining the? same, when the required return differs from the coupon interest rate and is assumed to be constant to? maturity, what happens to the bond value as time moves toward? maturity? Explain in light of the following? graph:

Reference no: EM131456087

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