You have been given the following information for an existing bond that provides coupon payments.
Par Value: $2000
Coupon rate: 6%
Maturity: 4 years
Required rate of return: 6%.
What is the Present Value (PV) of the bond?
If the required rate of return by investors were 11% instead of 6%, what would the Present Value of the bond be?
Look at the same Par Value $2,000
Same Coupon rate: 6%
Maturity: 10 years
Required rate of return: 7%
What is the Present Value of the Bond now?
Explain how the longer maturities and higher required rate of return by investors affects the bond valuation.
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