Question

AutoSave file Home X Cut 2 - Design - Layout - Insert 0 Comm References Mailings Review View Help Documenti - Word Ibekwe, Kem : Search II AaBbcd AaBbceDd AaBbc Aabbcc AaB AabbCD Abod Abood 1 Normal 1 No Space Heading 1 Heading 2 Title Subtitle Subtle Em. Emphasis E 1 Calibr (Body) - 11 BIU. , * faste the Copy A A A A-D Share e Find 4 Replace Select A - - A E Dictate Format Painter Clipboard E . Paragraph Styles Editing A $1000-face-value bond issued by Dire Wolf Co. currently matures in 18 years, pays annual coupon payments at a coupon rate of 9% and has a required return of 10% (per year). (a) Calculate a fair price for this bond today. (b) If you believe that, 3 years from now, the appropriate required return will still be 10% calculate what the price should be 3 years from now. (c) If you believe that, 12 years from now, the appropriate required return will be still be 10% calculate what the price should be 12 years from now. (d) if instead you believe that, 12 years from now, the appropriate required return will be 18% calculate what the price should be 12 years from now!

Answer 1

rate positively ...

	Given that -
	Par value =	1000
	Maturity period =	18
	Coupon rate =	9%
	Coupon amount=	90
	1000*9%
	To solve this problem we have to use finanical calculator for each individual cases
	Put in calculator
		Case _a		Case _b		Case _c		Case _d
	FV	1000		1000		1000		1000
	PMT	90		90		90		90
	I	10%		10%		10%		18%
	N	18		15		6		6
	compute PV	($917.99)		($923.94)		($956.45)		($685.22)
	Ans a)	$917.99
	ans b)	$923.94
	ans c)	$956.45
	ans d)	$685.22