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Kyser Public Utilities issued a bond with a $1,000 par value that pays $80 in annual interest. It matures in 20 years. Your required rate of return is 9 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return (1) increases to 12 percent or (2) decreases to 5 percent?
c. Explain the implications of your answers in part (b) as they relate to interest rate risk, premium bonds, and discount bonds.
d. Assume that the bond matures in 10 years instead of 20 years. Recompute your answers in part (b).
e. Explain the implications of your answers in part (d) as they relate to interest rate risk, premium? bonds, and discount bonds.
Calculate the price of Bond A 2 years from now if it has a 7% annual coupon matures in 12 years and has $1000 face value and yield to maturity is 9%.
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