You are examining three bonds with a par value of $ 1,000 (you receive $ 1,000 at

Question:

You are examining three bonds with a of $ 1,000 (you receive $ 1,000 at and are concerned with what would happen to their market value if interest rates (or the market changed. The three bonds are Bond A— a bond with 3 years left to that has a 6 percent annual interest rate, but the interest is paid semiannually. Bond B— a bond with 7 years left to that has a 6 percent annual interest rate, but the interest is paid semiannually. Bond C— a bond with 20 years left to that has a 6 percent annual interest rate, but the interest is paid semiannually. What would be the value of these bonds if the market 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?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...