Redlands issued 20 year, $1,000 par value term bonds on January 1, 2010. The bon

ID: 2765857 • Letter: R

Question

Redlands issued 20 year, $1,000 par value term bonds on January 1, 2010. The bonds had an 8% stated rate of interest..

Required:

1.On December 31, 2015 the market rate of interest is 8% on new bonds. What is the current market price if you decide to sell your bonds

2.On December 31, 2015 the market rate of interest is 10% on new bonds. What is the current market price if you decide to sell your bonds

3.On December 31, 2015 the market rate of interest is 7% on new bonds. What is the current market price if you decide to sell your bonds

Years to Maturity of the Bond = 14 years

Par Value = $1,000

Coupon = 8% * $1,000 = $80

Using excel 'PV' functions, the prices can be calculated as

(1) YTM = 8%

Price = $1,000

(2) YTM = 10%

Price = $852.67

(3) YTM = 7%

Price = $1,087.45

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