Reference no: EM132554222
Energy Plus Limited (EP) is operating in the booming energy sector. The company recognised that to stay competitive it must implement projects which would reduce the cost of products to its customers. EP's board of directors approved the recommendation to finance the project by issuing new debt. On January 1, 2014, EP issued new bonds which will mature on December 31, 2038. The bonds have a par value of $1,000 and a coupon rate of 12%. Coupon payments are made SEMI-ANNUALLY.
Question i.) What would be the value of the bonds on December 31, 2018, if the interest rates had risen to 16%? Based on the price of the bond, how would you classify the bond?
Question ii.) What would be their value on June 30, 2026, if interest rates had fallen to 8%? Based on the price of the bond, how would you classify the bond?
Question iii.) If the bonds had a value of $860.00 on June 30, 2024, what would be their yield to maturity on that date?
Question iv.) If the bond was a zero-coupon bond, what would its value be on June 30, 2026 at an interest rate of 8%?
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