FIN 419 WEEK 3 Chapter 6 P6–15 Basic bond valuation SOLUTION
FIN 419 WEEK 3 Chapter 6 P6–15 Basic bond valuation TUTORIAL
FIN 419 W3 C6 P6–15 Basic bond valuation
University of Phoenix
FIN 419: Finance for Decision making
Chapter 6 P6–15
Basic bond valuation Complex Systems has an outstanding issue of $1,000- par-value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date.
a. If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today?
b. Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Complex Systems bond.
c. If the required return were at 12% instead of 10%, what would the current value of Complex Systems’ bond be? Contrast this finding with your findings in part a and discuss.
