Question - The Nickelodeon Manufacturing Co. has a series of $1,000 par value bonds outstanding. Each bond pays interest semi annually and carries a coupon rate of 7%. Some bonds are due in 3 years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of
A) the bonds with 3 years to maturity?
B) the bonds with 10 years to maturity?
C) Explain the relationship between the number of years until a bond matures and its price.
Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years?