### Free Educational Resources

• > Arizona Public Utilities issued a bond that pays \$70 in interest...
+

# Arizona Public Utilities issued a bond that pays \$70 in interest...

##### Rating:
(0)
Author: Minnie Fisher
##### Description:

http://homework.plus/arizona-public-utilities-issued-a-bond-that-pays-70-in-interest-with-a-1-000-par-value-and-matures-in-25-years/

Arizona Public Utilities issued a bond that pays \$70 in interest, with a \$1,000 par value and matures in 25 years

(Bond valuation relationships) Arizona Public Utilities issued a bond that pays \$70 in interest, with a \$1,000 par value and matures in 25 years. The markers required yield to maturity on a comparable-risk bond is 8 percent. (Round to the nearest cent.) For questions with two answer options (e.g. increase/decrease) choose the best answer and write it in the answer block.  (please see multiple questions below)

Question

a. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond is 8 percent?

\$

b. What is the value of the bond if the markers required yield to maturity on a comparable-risk bond increases to 11 percent?

\$

c. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond decreases to 7 percent?

\$

d. The change in the value of a bond caused by changing interest rates is called interest-rate risk. Based on the answer: in parts b and c, a decrease in interest rates (the yield to maturity) will cause the value of a bond to (increase/decrease):

By contrast in interest rates will cause the value to (increase/decrease):

Also, based on the answers in part b, if the yield to maturity (current interest rate) equals the coupon interest rate, the bond will sell at (par/face value):

exceeds the bond's coupon rate, the bond will sell at a (discount/premium):

and is less than the bond's coupon rate, the bond will sell at a (discount/premium):

e. Assume the bond matures in 5 years instead of 25 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 8 percent? \$ 960.07 Assume the bond matures in 5 years instead of 25 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 11 percent?

\$

f. Assume the bond matures in 5 years instead of 25 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 7 percent?

\$

g. From the findings in part e, we can conclude that a bondholder owning a long-term bond is exposed to (more/less) interest-rate risk than one owning a short-term bond.

(more)
##### Try a College Course Free

Sophia’s self-paced online courses are a great way to save time and money as you earn credits eligible for transfer to over 2,000 colleges and universities.*

No credit card required

26 Sophia partners guarantee credit transfer.

226 Institutions have accepted or given pre-approval for credit transfer.

* The American Council on Education's College Credit Recommendation Service (ACE Credit®) has evaluated and recommended college credit for 21 of Sophia’s online courses. More than 2,000 colleges and universities consider ACE CREDIT recommendations in determining the applicability to their course and degree programs.

Tutorial