Home / Business / Finance /Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have \( \$ 1,000 \) par values and \( 11 \% \) coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the value of bond \( \mathrm{A} \) if the required return is (1) \( 8 \% \), (2) \( 11 \% \), and (3) \( 14 \% \). b. Calculate the value of bond \( \mathrm{B} \) if the required return is (1) \( 8 \%,(2) 11 \% \), and (3) \( 14 \% \).>c. From your findings in parts a and \( \mathbf{b} \), complete the following table, and discuss the relationship between time to maturity and changing required returns. \begin{tabular}{ccc} Required return & Value of bond A & Value of bond B \\ \hline \( 8 \% \) & \( ? \) & \( ? \) \\ 11 & \( ? \) & \( ? \) \\ 14 & \( ? \) & \( ? \) \end{tabular} d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?

Question Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have \( \$ 1,000 \) par values and \( 11 \% \) coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the value of bond \( \mathrm{A} \) if the required return is (1) \( 8 \% \), (2) \( 11 \% \), and (3) \( 14 \% \). b. Calculate the value of bond \( \mathrm{B} \) if the required return is (1) \( 8 \%,(2) 11 \% \), and (3) \( 14 \% \).>c. From your findings in parts a and \( \mathbf{b} \), complete the following table, and discuss the relationship between time to maturity and changing required returns. \begin{tabular}{ccc} Required return & Value of bond A & Value of bond B \\ \hline \( 8 \% \) & \( ? \) & \( ? \) \\ 11 & \( ? \) & \( ? \) \\ 14 & \( ? \) & \( ? \) \end{tabular} d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?

PO7EHV The Asker · Finance
Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have \( \$ 1,000 \) par values and \( 11 \% \) coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity.
a. Calculate the value of bond \( \mathrm{A} \) if the required return is (1) \( 8 \% \), (2) \( 11 \% \), and (3) \( 14 \% \).
b. Calculate the value of bond \( \mathrm{B} \) if the required return is (1) \( 8 \%,(2) 11 \% \), and (3) \( 14 \% \).>c. From your findings in parts a and \( \mathbf{b} \), complete the following table, and discuss the relationship between time to maturity and changing required returns.
\begin{tabular}{ccc} 
Required return & Value of bond A & Value of bond B \\
\hline \( 8 \% \) & \( ? \) & \( ? \) \\
11 & \( ? \) & \( ? \) \\
14 & \( ? \) & \( ? \)
\end{tabular}
d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?
Transcribed Image Text: Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have \( \$ 1,000 \) par values and \( 11 \% \) coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the value of bond \( \mathrm{A} \) if the required return is (1) \( 8 \% \), (2) \( 11 \% \), and (3) \( 14 \% \). b. Calculate the value of bond \( \mathrm{B} \) if the required return is (1) \( 8 \%,(2) 11 \% \), and (3) \( 14 \% \).>c. From your findings in parts a and \( \mathbf{b} \), complete the following table, and discuss the relationship between time to maturity and changing required returns. \begin{tabular}{ccc} Required return & Value of bond A & Value of bond B \\ \hline \( 8 \% \) & \( ? \) & \( ? \) \\ 11 & \( ? \) & \( ? \) \\ 14 & \( ? \) & \( ? \) \end{tabular} d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?
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Transcribed Image Text: Bond value and time: Changing required returns Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have \( \$ 1,000 \) par values and \( 11 \% \) coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the value of bond \( \mathrm{A} \) if the required return is (1) \( 8 \% \), (2) \( 11 \% \), and (3) \( 14 \% \). b. Calculate the value of bond \( \mathrm{B} \) if the required return is (1) \( 8 \%,(2) 11 \% \), and (3) \( 14 \% \).>c. From your findings in parts a and \( \mathbf{b} \), complete the following table, and discuss the relationship between time to maturity and changing required returns. \begin{tabular}{ccc} Required return & Value of bond A & Value of bond B \\ \hline \( 8 \% \) & \( ? \) & \( ? \) \\ 11 & \( ? \) & \( ? \) \\ 14 & \( ? \) & \( ? \) \end{tabular} d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why?

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