Homework: Assignment 3 Score: 0 of 10 pts P6-18 (similar to) Save 9 of 10 (8 com

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Homework: Assignment 3 Score: 0 of 10 pts P6-18 (similar to) Save 9 of 10 (8 complete) Hw Score: 46.67%, 46.67 of 100 pt Question Help Bond value and time constant required returns Pecos Manufactu ng has st issued a 15-year 14% oo po currently 17%, and the company is certain it wil remain at 17% until the bond matures in 15 years. interest rate $1,000 or bond that pays nerost annua y The reored return is a. Assur ing that the required return does remain at 17% until matunty, find the value of the bord wit(1 15 years (2) 12 years, a) 9yars. 4) 6 years (Saya saryear to atuity b. All else remaining the same, when the required retum differs from the coupon interest rate and is assumed to be constant to mahurity, what happens to the bond value as time moves toward maturity? Explain in light of the following graph: a. (1) The value of the bond with 15 years to maturity is $(Round to the nearest cent.) Enter your answer in the answer box and then click Check Answer parts Clear All Check Answer

Explanation / Answer

Fromula for bond:
=-PV(0.17,G8,140,1000)

here 0.17 is rate, G8 is the time to maturity for each, 140 is the coupon, 1000 is the Future value
Coupon rate =14%=0.14*1000=140

b) As time passes the bond value shall converge to its intrinsic value. If bond sells at a discount its price shall rise and it shall move to par value. A remium bond value shall decrease and it shall fall to the par value.

Time to maturity Coupon rate Value 15 $ 140.00 0.17 $ 840.27 12 $ 140.00 0.17 $ 850.35 9 $ 140.00 0.17 $ 866.48 6 $ 140.00 0.17 $ 892.32 3 $ 140.00 0.17 $ 933.71 1 $ 140.00 0.17 $ 974.36

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