Discuss the relationship between time to maturity

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Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have ?$1,000 par values and 9?% coupon interest rates and pay annual interest. Bond A has exactly 6 years to? maturity, and bond B has 16 years to maturity.

a. Calculate the present value of bond A if the required rate of return? is: (1) 6?%, ?(2) 9?%, and? (3) 12?%.

b. Calculate the present value of bond B if the required rate of return? is: (1) 6?%, ?(2) 9?%, and? (3) 12?%.

c. From your findings in parts a and b?, discuss the relationship between time to maturity and changing required returns.

d. If Lynn wanted to minimize interest rate? risk, which bond should she? purchase? Why?

Reference no: EM132702242

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