Problem: The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of:
1) The bonds with 3 years to maturity?
2) The bonds with 10 years to maturity?
3) Explain the relationship between the number of years until a bond matures and its price.
4) Explain the relationships between interest rates and the price of bonds as it relates to (i) premium (ii) Par and (iii) Discount.