# Question

You are examining three bonds with a par value of $ 1,000 (you receive $ 1,000 at maturity) and are concerned with what would happen to their market value if interest rates (or the market discount rate) changed. The three bonds are Bond A— a bond with 3 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. Bond B— a bond with 7 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. Bond C— a bond with 20 years left to maturity that has a 6 percent annual coupon interest rate, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were

a. 6 percent per year compounded semiannually?

b. 3 percent per year compounded semiannually?

c. 9 percent per year compounded semiannually?

d. What observations can you make about these results?

a. 6 percent per year compounded semiannually?

b. 3 percent per year compounded semiannually?

c. 9 percent per year compounded semiannually?

d. What observations can you make about these results?

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