Assume a healthcare organization sold bonds that have a 10-year maturity, a 12% coupon rate with annual payments, and a $1,000 par value.
a. Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bonds' value?
b. Suppsoe that two years after the bonds were issued, the required interest rate rose to 13 percent. What would be the bonds' value?
c. What would be the value of the bonds three years after issue in each scenario above, assuming that interest rates stayed at either 7 percent or 13 percent?
Bond's value is the present value of cash flow from bonds.
After 2 years remaining life is 8 years.
Present Value of coupon interest
Present Value of face value = 120 =
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