P6-17 (similar to) 0 Bond value and changing required returns Midland Utilities has a bond...
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P6-17 (similar to) 0 Bond value and changing required returns Midland Utilities has a bond issue outstanding that will mature to its $1,000 par value in 14 years. The bond has a coupon interest rate of 12% and pays interest annually. a. Find the value of the bond if the required return is (1) 12%, (2) 16%, and (3) 9%. b. Use your finding in part a and the graph here, and to discuss the relationship between the coupon interest rate on a bond and the required return and the market value of the bond relative to its par value. c. What two possible reasons could cause the required return to differ from the coupon interest rate? a. (1) The value of the bond, if the required return is 12%, is $. (Round to the nearest cent.) i Graph/Chart - X 0 Bond Value ($) 1.500 1,400- 1.300- 1,200- 1,100- 1.000- 900- 800- 700- 600- 500+ 9 16 10 11 12 13 14 15 Required return (%) Print Done
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