Question: P625 Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par

P625 Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 11% coupon rates and pay annual interest. Bond A has exactly five years to maturity, and bond B has 15 years to maturity.

A: Calculate the value of bond A if the required return is (1) 8%, (2) 11%, and (3) 14%.

B: Calculate the value of bond B if the required return is (1) 8%, (2) 11%, and (3) 14%.

C: From your findings in parts a and b, complete the following table, and discuss the relationship between time to maturity and changing required returns.

D: If Lynn wants to minimize interest rate risk, which bond should she purchase? Why?

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