Bond value and time---Constant required returns Pecos
Manufacturing has just issued a 15-year, 13% coupon interest rate,
$1,000-par bond that pays interest annually. The required return is
currently 17%, and the company is certain it will remain at 17%
until the bond matures in 15 years.
a. Assuming that the required return does remain at 17%
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?
Bond value and time---Constant required returns Pecos Manufacturing has just issued a 15-year, 13% coupon interest rat
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