PART 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?(Select the best answer below.)

A.The bond value approaches infinity. B.The bond value approaches the par value. C.The bond value approaches the amount of the last interest payment. D.The bond value approaches zero.

Bond value and timeConstant required returns Pecos Manufacturing has just issued a 15-year, 15% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 12%, and the company is certain it will remain at 12% until the bond matures in 15 years. a. Assuming that the required return does remain at 12% 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