Spartak Moscow Sdn Bhd owns a bond that pays RM400 in annualinterest with a RM2000 par
value. It matures in 20 years. The company requires rate of returnis 14 percent.
(a) Calculate the value of the bond.
(b) How does the value change of your required rate of returnincreases to 19 percent or
decrease to 10 percent?
(c) Explain the implications of your answers in part (b) ofquestion 4 as they relate to interest
rate risk, premium bonds, and discount bonds.
(d) Assume the bond matures in 15 years instead of 20 years.Re-compute your answer in part
(b) of question 4.
