Bond value and

timeConstant

required returnsPecos Manufacturing has just issued a

15-year,

9%

coupon interest rate,

$1,000-par

bond that pays interest annually.The required return is currently

16%,

and the company is certain it will remain at

16%

until the bond matures in

15

years.

a.Assuming that the required return does remain at

16%

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 remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity? Explain in light of the following graph:

- Graph/Chart 1,300- 1.2004 1.1007 2 1,000- Bond Value ($) 900- 800- 700- 600- 500- 15 Years to Maturity Print Done