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4. Exxon Mobil 20-year bonds pay 9 percent interest annually

Resolved Question:

4. Exxon Mobil 20-year bonds pay 9 percent interest annually on a $1,000 par value. If bonds sell at $945, what is the bonds’ expected rate of return?
6. National Steel 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent.
a. Compute the bond’s expected rate of return.
b. Determine the value of the bond to you, given your required rate of return.
c. Should you purchase the bond?
8. New Generation Public Utilities issued a bond that pays $80 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 7 percent.
a. Calculate the value of the bond.
b. How does the value change if your required rate of return (1) increases to 10 percent or (2) decreases to 6 percent?
c. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds.
d. Assume that the bond
Submitted: 7 years ago.
Category: Homework
Expert:  SteveS replied 7 years ago.
HiCustomer

The last question got cut off. Can you please complete the post? I have the first two questions already answered. Thanks.

Steve
Customer: replied 7 years ago.
New Generation Public Utilities issued a bond that pays $80 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 7 percent.
  1. Calculate the value of the bond.

  2. How does the value change if your required rate of return (1) increases to 10 percent or (2) decreases to 6 percent?

  3. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds.

  4. Assume that the bond matures in 10 years instead of 20 years. Recompute your answers in part b.

  5. Explain the implications of your answers in part d as they relate to interest rate risk, premium bonds, and discount bonds.
Expert:  SteveS replied 7 years ago.
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