If there a two bonds issued and each pay $100.annual interest plus $1000. at maturity, Bond L has maturity of 15yrs.; Bond S maturity of 1 yr., what will be the value of each bond when the interest rate is 5%, 8% and12%? Assuming only one payment left to be made.

Answer 1

Bond value and time—Constant required returns Pecos Manufacturing has just
issued a 15-year, 12% coupon interest rate, $1,000-par bond that pays interest
annually. The required return is currently 14%, and the company is certain it will
remain at 14% until the bond matures in 15 years.
a. Assuming that the required return does remain at 14% until maturity, find the
value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years,
(5) 3 years, and (6) 1 year to maturity.