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 a​comparable-risk bond is 7​percent?

​(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 a​comparable-risk bond is 7​percent?

=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 a​comparable-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