Bond valuation relationship: You own a bond that pays $120 in annual interest with a $1,1000 par value. It matures in 10 years. The market's required yield to maturity on a comparable risk bond is 11%
A. what is the value of the bond if the markets required yield to maturity on a comparable risk bond is 11%? $_____ (round to the nearest cent)
1. What is the value of the bond if the yield to maturity on a comparable risk bond increases to 16% $______ (round to the nearest cent)
2. What is the value of the bond if the yield to maturity on a comparable risk bond decreases to 8% $_____(round to the nearest cent)
C The change in the value of a bond caused by changing interest rates is called interest rate risk. Based on the answers in part b, a decrease in interest rates (the yield to maturity) will cause the value of a bond to _________(Increase, decrease, be unchanged) ; by contrast, an increase in interest rates will cause the value to ________(Increae, Decrease, be Unchanged) Select from the word in bold face.
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, a discount, a premium); exceeds the bond's coupon rate, the bond will sell at _________ ( par, a discount, a premium) ; and is less than the bond's coupon rate, the bond will sell at_______ (par, a discount, a premium)