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.
the relationship between time to maturity and changing required returns.
Required return Value of bond A Value of bond B
8% ? ?
11 ? ?
14 ? ?
Bond Coupon interest rate Yield to maturity Price
A 6% 10%
B 8 8
C 9 7
D 7 9
E 12 10
Bond Par value Coupon interest rate Years to maturity Current value
A $1,000 9% 8 $ 820
B 1,000 12 16 1,000
C 500 12 12 560
D 1,000 15 10 1,120
E 1,000 5 3 900
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