Bond value and timeConstant required returns Pecos Manufacturing has just issued a 15-year, 15% coupon interest rate, $1,000-par

bond that pays interest annually.The required return is currently 12% and the company is certain it will remain at 12% until the bond matures in 15 years.

a.Assuming that the required return does remain at

12%

until maturity, find the value of the bond with (1)

15

years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, (6) 1 year to maturity.

b.All else equal, when the required return differs from the coupon rate and is constant to maturity, what happens to the bond value as time passes? Explain in light of the following graph:

1,300- 1,200 1,100- 1,000- Bond Value ($) 900- 800- 700- 600- 500 15 0 Years to Maturity