Problem 4 21 Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10 year maturity, a $1,000 par value, a 10 coupon rate, and semiannual interest payments Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 7 At what price would the bonds sell Round the answer to the nearest cent $ Suppose that 2 years after the initial offering, the going interest rate had risen to 13 At what price would the bonds sell Round the answer to the nearest cent $ Suppose that 2 years after the issue date (as in part a) interest rates fell to 7 Suppose further that the interest rate remained at 7 for the next 8 years What would happen to the price of the bonds over time I The price of the bond will rise, approaching $1,000 at the maturity date II The price of the bond will decline, approaching $1,000 at the maturity date III The price of the bond will remain the same

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Question: Problem 4-21 Bond Valuation and Changes in Maturity and Required Returns Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000

Problem 4-21 Bond Valuation and Changes in Maturity and Required Returns

Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.

Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 7%. At what price would the bonds sell? Round the answer to the nearest cent. $
Suppose that 2 years after the initial offering, the going interest rate had risen to 13%. At what price would the bonds sell? Round the answer to the nearest cent. $
Suppose that 2 years after the issue date (as in part a) interest rates fell to 7%. Suppose further that the interest rate remained at 7% for the next 8 years. What would happen to the price of the bonds over time? I. The price of the bond will rise, approaching $1,000 at the maturity date. II. The price of the bond will decline, approaching $1,000 at the maturity date. III. The price of the bond will remain the same.

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