Problem:
Assume Venture Healthcare sold bonds that have a 10-year maturity, a 12% coupon rate with annual payments and a $1000 par value.
a. Suppose that two years after the bonds were issued, the required interest rate fell to 7%. What would be the bonds' value?
b. Suppose that two years after the bonds were issued, the required interest rate rose to 13%. 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 steady at either 7% or 13%?
Additional Information:
This question is basically belongs to the Finance as well as it discusses about 10 year maturity bonds with falling as well as increasing coupon rates. The value of the bonds with such falling and increasing coupon rates has been stated in the solution.