1. What should the current market price be for a bond with a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 12%, and 20 years until maturity?
2. What should the current market price be for a bond with a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 8%, and 20 years until maturity?
3. What generalizations about bond prices can you make given your answers to #1 and #2?
4. A bond has a market price of $1,000, a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 10%, and 30 years until maturity. If the required rate of return immediately increased to 13%, what is the new market price of the bond?
5. A bond has a market price of $1,000, a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 10%, and 10 years until maturity. If the required rate of return immediately increased to 13%, what is the new market price of the bond?
6. What generalizations about bond prices can you make given your answers to #4 and #5?
7. The CFO of Brady Corp. announces that the firm plans to grow its annual dividend at a rate of 3% forever. The company just paid its annual dividend (Do) of $2.00 per share. If the required rate of return on Brady’s stock is 10%, what should the current price of the stock be?
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