Here are data on $1,000 par value bonds issued by Walmart and Pfizer. Assume you are thinking
Question:
Here are data on $1,000 par value bonds issued by Walmart and Pfizer. Assume you are thinking about buying these bonds.
Walmart | Pfizer | |
Coupon | 5% | 4% |
Years to Maturity | 20 | 10 |
Required Return | 4% | 6% |
Answer the following questions:
a) Assuming interest is paid annually, calculate the values of each of the bonds (10 points)
b) How would these values change if the coupon was paid semiannually (10 points
c) Assume that the bonds with the coupon that is paid annually (point a) are selling for the following amounts:
Walmart $1,100
Pfizer $980
What are the expected rates of return (YTM) for each bond? (10 points)
d) How would change the price of each bond if the required rate of return (current 4% for Walmart and 6% for the Pfizer and with annual coupon) increased by 2% (10 points). What will you deduce about the relationship between market interest rate and bond prices?
Expert Answer:
a To calculate the value of each bond we can use the formula Bond value coupon payment required retu... View the full answer
