Consider the two bonds described below:
Bond A Bond B
Maturity Years 15 20
Coupon Rate 10 6
(Paid Semiannually)
Par Value 1,000 1,000
1) If both bonds had a required return of 8%, what would the bonds prices be? Show work.
2) Describe what it means if a bond sells at a discount, a premium, and at its face amount (par value). Are these two bonds selling at a discount, premium or par?
3) If the required return on the two bonds rose to 10%, what would the bonds' prices be? Show work.