Exam 9: Debt Valuation and Interest Rates

Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a coupon rate of 9%. The $1,000 par value bond pays interest semiannually and was originally issued with a term of 30 years. If today's interest rate is 14%, what is the value of the bond today?

Garvin, Inc.'s bonds have a par value of $1,000. The bonds pay semiannual interest of $40 and mature in five years. a. How much would you pay for Garvin bonds if your required rate of return is 10%? b. How much would you pay if your required rate of return is 8%?

What is the value of a bond that matures in three years, has an annual coupon payment of $110, and a par value of $1,000? Assume a required rate of return of 11%, and round your answer to the nearest $10.

Why are longer-term bonds more sensitive to changes in interest rates than shorter-term bonds?

Bonds are rated by either Moody's or Standard & Poors or both.