What would happen to the price of the bonds over time

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Question: 1. The Brownstone Corporation bonds have 10 years remaining to maturity. Interest is paidannually; the bonds have a $1,000 par value; and the coupon interest rate is 9%.

- What is the yield to maturity at a current market price of (1) $875 or (2) $1,080?

- Would you pay $875 for one of these bonds if you thought that the appropriate rate of interest was 10% that is, if rd = 10%? Explain your answer.

2. SupposeLevel10Systemssoldanissueofbondswitha15-yearmaturity,a$1,000parvalue, a 6% coupon rate, and semiannual interest payments.

- Six years after the bonds were issued, the going rate of interest on bonds such as these fell to 5%. At what price would the bonds sell?

- Suppose that, 6 years after the initial offering, the going interest rate had risen to 8%. At what price would the bonds sell?

- Suppose that the conditions in part a existed that is, interest rates fell to 5% 6 years after the issue date. Suppose further that the interest rate remained at 5% for the next 9 years. What would happen to the price of the bonds over time?

Reference no: EM132753341

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