3M Corporation has outstanding an issue of $1000 face value, 8.5% coupon bonds that mature in 15 years. Today, investors require a 14% rate of return.
a. Calculate the price of these bonds today.
b. Calculate the price of these bonds 5 years from now if market interests do not change.
c. Calculate the price of these bonds 5 years from now if investors’ required rate of return declines to 11%.
Bond Par Value = $1,000
Coupon Rate = 8.5%
YTM = 14%
a.
Time Period = 15 years
Calculating Bond Value,
Using TVM Calculation,
PV = [FV = 1,000, PMT = 85, T = 15, I = 0.14]
PV = $662.18
b.
Time Period = 10 years
Calculating Bond Value,
Using TVM Calculation,
PV = [FV = 1,000, PMT = 85, T = 10, I = 0.14]
PV = $713.11
c.
Calculating Bond Value,
Using TVM Calculation,
PV = [FV = 1,000, PMT = 85, T = 10, I = 0.111]
PV = $852.77
3M Corporation has outstanding an issue of $1000 face value, 8.5% coupon bonds that mature in...
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