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?


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  • CreatedSeptember 11, 2015
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