Question: Provide your answers/solutions in the answer space provided below. Answer all questions. Susan bought a 15-year bond when it was issued by Octodan Corporation 3

Provide your answers/solutions in the answer space provided below.

Answer all questions.

  1. Susan bought a 15-year bond when it was issued by Octodan Corporation 3 years ago (NOTE: the bond was issued 3 years ago. In calculating price today, remember it has only 12 years remaining to maturity). The bond has a $1,000 face value, an annual coupon rate equal to 8 percent and the coupon is paid every six months. If the yield on similar-risk investments is 10 percent,
    1. What is the current market value (price) of the bond?
    2. Suppose interest rate levels rise to the point where such bonds now yield 12 percent. What would be the price of Octodan bond?
    3. At what price would Octodan bonds sell if the yield on them was 7 percent?
    4. What do you observe regarding the relationship between interest rate (YTM) bonds price?
    5. What do you observe regarding the relationship between coupon, YTM and the bonds price?

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