Bond value and time long dash—Constant required returns
Pecos Manufacturing has just issued a15-year, 8?% coupon interest? rate, $1000- par bond that pays interest annually. The required return is currently 12?%,and the company is certain it will remain at 12?% until the bond matures in 15years.
a. Assuming that the required return does remain at 12?%until? maturity, find the value of the bond with? (1)15years, (2) 12? years, (3) 9? years, (4) 6? years, (5) 3? years, (6) 1 year to maturity.
b. All else remaining the? same, when the required return differs from the coupon interest rate and is assumed to be constant to? maturity, what happens to the bond value as time moves toward? maturity?