What is the value of the bond

Reference no: EM132206404

Question - There is a bond that pays $100 per year interest, with a $1,000 par value. It matures in 15 years. The market required yield to maturity on a comparable bond is 12%.

1. What is the value of the bond?

2. How does the value change if the yield to maturity on a comparable bond increase to 15%? What if it decreases to 8%.

3. Explain the above questions (part b) with the concepts of interest rate risk, premium bonds and discount bonds.

4. Recalculate the answer in b, with the assumption that the bond matures in 5 years (instead of 15 years).

5. Explain the above questions (part d) with the concepts of interest rate risk, premium bonds and discount bonds.

Reference no: EM132206404

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