P621 Bond value and changing required returns Midland Utilities has a bond issue outstanding that will mature to its $1,000 par value in 12 years. The bond has a coupon rate of 11% and pays interest annually.

Find the bond value if the required return is (1) 11%, (2) 15%, and (3) 8%.

Plot your findings in part a on a set of required return (x-axis)market value of bond (y-axis) axes.

Use your findings in parts a and b to discuss the relationship between the coupon rate, the required return, and the market value of the bond relative to its par value.

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