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Bond value and time-Changing required returns??Personal Finance Problem ??Lynn Parsons is considering investing in either of...

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Finance

Bond value and time-Changing required returns??Personal FinanceProblem ??Lynn Parsons is considering investing in either of twooutstanding bonds. The bonds both have ?$1,000 par values and 12?%coupon interest rates and pay annual interest. Bond A has exactly 6years to? maturity, and bond B has 16 years to maturity.??a.??Calculate the present value of bond A if the required rate ofreturn? is: (1) 9?%, ?(2) 12?%, and? (3) 15?%. b.??Calculate thepresent value of bond B if the required rate of return? is: (1)9?%, ?(2) 12?%, and? (3) 15?%. c. From your findings in parts a andb?, discuss the relationship between time to maturity and changingrequired returns. d.??If Lynn wanted to minimize interest rate?risk, which bond should she? purchase? ? Why?

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4.2 Ratings (678 Votes)
Bondr 9r 12r 15ABPart C From the above PV calculations we cansee that till the time the interest rate is below the coupon ratethe bond with higher number of years to maturity has a greater PVand when the    See Answer
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