2.The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outsta

Question

2.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 6%. Some bonds are due in four 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 4 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.

please show all work thanks

Explanation / Answer

a and b. $932 and $834 respectively. c. The closer maturity makes the bond more valuable because the maturity value will be received sooner.

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