Bond value and changing required returnsMidland Utilities has a bond issue outstanding that will mature to its $1000 par value in 17 years. The bond has a coupon interest rate of 9% and pays interest annually.

a.Find the value of the bond if the required return is (1) 9%, (2) 13%, and (3) 6%.

b.Use your finding in part a and the graph to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value.

c.What two possible reasons could cause the required return to differ from the coupon interest rate?

GRAPH:

1,500- 1,400- 1,300 1,200- 1,100 1,000- 900- 800- 700- 600- 500+ 7 11 8 9 10 12 13 Required return (% Bond Value ($) CO