Question

a.  Calculate the value of the bond.

1.  How does the value change if the​ market's required yield to maturity on a​ comparable-risk bond​ (i) increases to 11 percent or​ (ii) decreases to 6 percent?

2.  Explain the implications of your answers in part b as they relate to​ interest-rate risk, premium​ bonds, and discount bonds.

3.  Assume that the bond matures in15 years instead of 20 years. Recompute your answers in parts a and b.

4.  Explain the implications of your answers in part d as they relate to​ interest-rate risk, premium​ bonds, and discount bonds.

P9-19 (similar to) Question Help (Bond valuation relationships) Arizona Public Utilities issued a bond that pays $80 in interest, with a $1,000 par value. It matures in 20 years. The market's required yield to maturity on a comparable-risk bond is 7 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond () increases to 11 percent or ) decreases too 6 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 15 years instead of 20 years. Recompute your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is 7 percent? S(Round to the nearest cent.) (? Enter your answer in the answer box and then click Check Answer. 8 parts remainina Clear All Check Answer javascriotdoExercise(8);

Answer 1

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BOND - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General Wrap Text Merge Merge & Center - Center BI U SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing -11AA = = = D- DA Font fax AQ AR Find & Select Alignment Number Cells E Copy Paste Format Painter Clipboard AR66 AO 47 48 > AP - AS AT AU AV AW AX AY AZ BA 49 FV COUPON LIFE YTM 1000 80 20 7% 50 51 52 53 54 55 (a) VALUE OF BOND $ 1,105.94 EXCEL =PV(AS51, AS50,-AS49,-AS48) (b)(0) IF YTM INCREASES TO VALUE OF BOND 11% $ 761.10 EXCEL=PV(AS55, AS50,-AS49,-AS48) 56 57 58 (b)(ii) 6% IF YTM DECREASES TO VALUE OF BOND $ 1,229.40 EXCEL = PV(AS58, AS50,-AS49,-AS48) (c) WHEN THE YTM = 11% : BOND IS TRADING AT A DISCOUNT AS YTM > COUPON RATE. SO IT IS A DISCOUNT BOND WHEN THE YTM = 6%: BOND IS TRADING AT A PREMIUM AS YTM< COUPON RATE. SO IT IS A PREMIUM BOND 60 61 62 63 64 65 66 AS THE LIFE IS HIGHER, THE BONDS HAVE HIGHER INTEREST RATE RISK COMPARED TO LOWER MATURITY BONDS 67 ► Sheet2 AFN BANKING NOTE 51 53 CLEAN PRICE S10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARRANT refund S5 0 0 YIELD SPOT ferences S4 80 S6 120% Rea S E O * 10 ENG 20-11-2019

BOND - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General Σ AutoSum : A Fill 2 Sort & Wrap Text Merge Merge & Center - Center m Find & -11AA = = = B- A Font C E Copy Paste Format Painter Clipboard B I U SF 4:0 .00 . Insert Delete Format $ -% % Number Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Alignment Cells AV69 AP I AQ AR AS AT AU AV AW AX AY AZ BA BB 5 67 68 69 70 71 1000 LIFE IS NOW 15 YEARS FV COUPON LIFE YTM 80 15 7% (d) VALUE OF BOND $ 1,091.08 EXCEL =PV(AS72, AS71,-AS70,-AS69) 73 74 75 76 77 78 79 80 81 IF YTM INCREASES TO VALUE OF BOND 11% $ 784.27 EXCEL =PV(AS76, AS71,-AS70,-AS69) IF YTM DECREASES TO VALUE OF BOND 6% $ 1,194.24 EXCEL = PV(AS79, AS71,-AS70,-AS69) 82 (e) WHEN THE YTM = 11% : BOND IS TRADING AT A DISCOUNT AS YTM > COUPON RATE. SO IT IS A DISCOUNT BOND WHEN THE YTM = 6% : BOND IS TRADING AT A PREMIUM AS YTM< COUPON RATE. SO IT IS A PREMIUM BOND 83 84 85 86 07 AS THE LIFE IS LOWER, THE BONDS HAVE LOWER INTEREST RATE RISK COMPARED TO HIGHER MATURITY BONDS WE CAN SEE 2 RESULTS, THE PRICE CHANGE IS SMALLER IN CASE OF LOWER MATURITY BONDS ► Sheet2 AFN BANKING NOTE 51 53 CLEAN PRICE S10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARRANT refund S5 YIELD SPOT ferences S4 90 Rea S6 O LI O 120% Ka 40 ENG 20-11-2019 ...Bag