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Bond valuation and changes in maturity and required returns

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Bond Valuation and Changes in Maturity and Required Returns

Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.

  1. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 8%. At what price would the bonds sell? Round the answer to the nearest cent.
  2. Suppose that 2 years after the initial offering, the going interest rate had risen to 13%. At what price would the bonds sell? Round the answer to the nearest cent.
  3. Suppose that 2 years after the issue date (as in part a) interest rates fell to 8%. Suppose further that the interest rate remained at 8% for the next 8 years. What would happen to the price of the bonds over time

Reference no: EM132386346

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