What generalizations about bond prices, interest rates and maturity periods can be made based

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1-

Bond Valuation and Yield

A bond has a par value of $1,000, pays $50 semiannually and has a maturity of 10 years.

If the bond earns 12% per year, what is the price of the bond?

Rate

Nper

PMT

FV

Type

PV

What is the yield to maturity for the bond?

Nper

PMT

PV

FV

Type

Rate

What would be the bond's price if the rate earned declined to 8% per year?

Rate

Nper

PMT

FV

Type

PV

If the maturity period is reduced to 5 years and the required rate of return is 8%, what would be the price of the bond?

Rate

Nper

PMT

FV

Type

PV

What is the yield to maturity for the bond when the maturity is 5 years and the required rate of return is 8%?

Nper

PMT

PV

FV

Type

Rate

What generalizations about bond prices, interest rates and maturity periods can be made based on the calculations made above?

2- Callable Bonds                                   The following bonds have a par value of $1,000 and the required rate of return is 10%.                      Bond XY: 5¼ percent coupon, with interest paid annually for 20 years       Bond AB: 14 percent coupon, with interest paid annually for 20 years                         What is each bond's current market price?                                 Bond XY Bond AB             Rate                 Nper                 PMT                 FV                 Type                 PV                                                     If current interest rates are 9%, which bond would you expect to be called? Explain.

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