Question

**Arizona Public Utilities issued a bond that pays $80in
interest, with a $1,000 par value. It matures in**

**20 years. The market's required yield to maturity on a
comparable-risk bond is 7percent.**

Assume the bond matures in 10 years instead of 20 years, what is the value of the bond if the yield to maturity on acomparable-risk bond is 7percent?

(Round to the nearest cent.)

Assume the bond matures in 10 years instead of 20 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 10 percent?

(Round to the nearest cent.)

Assume the bond matures in 10 years instead of20

years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 6 percent?

(Round to the nearest cent.)e. From the findings in part D,we can conclude that a bondholder owning a long-term bond is exposed to

▼

more

the same

less

interest-rate risk than one owning a short-term bond. (Select from the drop-down menu.)

Answer #1

Assume the bond matures in 10 years instead of 20 years, what is the value of the bond if the yield to maturity on acomparable-risk bond is 7percent?

=80/7%*(1-1/1.07^10)+1000/1.07^10

=1070.23582

Assume the bond matures in 10 years instead of 20 years, what is the value of the bond if the yield to maturity on acomparable-risk bond is 10 percent?

=80/10%*(1-1/1.1^10)+1000/1.1^10

=877.10866

Assume the bond matures in 10 years instead of20 years, what is the value of the bond if the yield to maturity on a comparable-risk bond is 6 percent?

=80/6%*(1-1/1.06^10)+1000/1.06^10

=1147.20174

From the findings in part D,we can conclude that a bondholder owning a long-term bond is exposed to more interest-rate risk than one owning a short-term bond

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