A $1,000 bond has a coupon of 8 percent and matures after eight years. Assume that the bond pays interest annually.What would be the bond's price if comparable debt yields 10 percent? Use Appendix B andAppendix D to answer the question. Round your answer to the nearest dollar.$ What would be the price if comparable debt yields 10 percent and the bond matures after four years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.$ Why are the prices different in a and b?The price of the bond in a is -Select-lessgreaterItem 3 than the price of the bond in b as the principal payment of the bond in a is -Select-further outcloserItem 4 than the principal payment of the bond in b (in time).What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places.The bond matures after eight years:CY: %YTM: %The bond matures after four years:CY: %YTM: %

Answered: A $1,000 bond has a coupon of 8 percent…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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A $1,000 bond has a coupon of 8 percent and matures after eight years. Assume that the bond pays interest annually.

What would be the bond's price if comparable debt yields 10 percent? Use Appendix B andAppendix D to answer the question. Round your answer to the nearest dollar.

$
What would be the price if comparable debt yields 10 percent and the bond matures after four years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

$
Why are the prices different in a and b?
The price of the bond in a is -Select-lessgreaterItem 3 than the price of the bond in b as the principal payment of the bond in a is -Select-further outcloserItem 4 than the principal payment of the bond in b (in time).
What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places.

The bond matures after eight years:

CY: %
YTM: %

The bond matures after four years:

CY: %
YTM: %

Expert Solution

Step 1

Since you have posted a question with multiple sub-parts, we will solve the first three subparts for you. To get the remaining sub-part solved please repost the complete question and mention the sub-parts to be solved

The price of the bonds can be determined by using an appropriate discount rate for a given number of years.

Step 2

We will be using the PVIFand PVIFA factors to determine the current price of the bonds

1. bond's price if comparable debt yields 10 percent is $893

$\begin{array}{rcl} B o n d P r i c e & = & C o u p o n \times P V I F A_{k, n} + F a c e v a l u e \times P V I F_{k, n} \\ k & = & d i s c o u n t r a t e = 10 % \\ n & = & t i m e p e r i o d = 8 y e a r s \\ B o n d P r i c e & = & 1, 000 \times 0.08 \times 5.3349 + 1, 000 \times 0.4665 \\ = & 426.792 + 466.5 \\ = & 893.29 \\ = & $ 893 \end{array}$

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