How will the expected return on this bond change

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Reference no: EM131141909

Imagine a short-term corporate $1,000 bond that promises to pay 8 percent interest over three years. This bond will pay $80 at the end of the first year and the second year, and $1,080 at the end of the third year. After one year, however, the market interest rate has increased to 12 percent. What will the bond be worth to an investor who is not too concerned about risk at that time? If the firm appears likely to go bankrupt, how will the expected return on this bond change?

Reference no: EM131141909

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