Comel Incorporation, a national multinational building materials company issued a bond with a RM1,000.00 par value that
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Question:
Comel Incorporation, a national multinational building materials company issued a bond with a RM1,000.00 par value that pays RM60.00 in annual interest. It matures in 30 years. The required rate of return is 4 percent.
a.Calculate the value of bond.
b.How does the value change if the required return: (i) increase to 8 percent or (ii) decrease to 3 percent?
c.Explain the implications of your answers in part (b) as they relate to interest rate risk, premium bonds, and discount bonds.
d. Assume that the bond matures in 18 years instead of 30 years. Recalculate your answer in part (b).
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