Bond value and time-Constant required returns Pecos Manufacturing has just issued a 15-year, 16% 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? Explain in light of the following graph: a. (1) The value of the bond with 5 years to maturity is $. (Round to the nearest cent.)

Bond value and time-Constant required returns Pecos Manufacturing has just issued a 15-year, 16% 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? Explain in light of the following graph: a. (1) The value of the bond with 5 years to maturity is $. (Round to the nearest cent.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 9P: Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both...

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Bond value and time-Constant required returns Pecos Manufacturing has just issued a 15-year, 12% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 15%, and the company is certain it will remain at 15% until the bond matures in 15 years. a. Assuming that the required return does remain at 15% 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 equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? Explain in light of the following graph: a. (1) The value of the bond with 15 years to maturity is $ (Round to the nearest cent.) Graph/chart Bond Value ($) 1,300- 1,200- 1,100- 1,000- 900- 800- 700- 600- 500+ 15 Years to Maturity - X
Bond value and time—Constant required returns Pecos Manufacturing has just issued a 15-year, 14% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years. a. Assuming that the required return does remain at 13% 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, 8% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 12%, and the company is certain it will remain at 12% until the bond matures in 15 years. a. Assuming that the required return does remain at 12% 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 equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? Explain in light of the following graph:
Bond value and time—Constant required returns Pecos Manufacturing has just issued a 15-year, 15% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 13%, and the company is certain it will remain at 13% until the bond matures in 15 years. a. Assuming that the required return does remain at 13% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity. b. All else equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? a. (1) The value of the bond with 15 years to maturity is ($enter your response here) (Round to the nearest cent.)