Basic bond valuation Complex Systems has an outstanding issue of $1,000-par-value bonds with a 13% coupon interest rate. The issue pays interest annually and has 17 years remaining to its maturity date.
a. If bonds of similar risk are currently earning a rate of return of 9%, how much should the Complex Systems bond sell for today?
b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.
c. If the required return were at 13% instead of 9%, what would be the current value of Complex Systems' bond? Contrast this finding with your findings in part a and discuss.
a. If bonds of similar risk are currently earning a rate of return of 9%, the Complex Systems bond should sell today for $_____(Round to the nearest cent.)
b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond. (Select the best answer below.)
A. Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for their product or a change in the risk towards loans.
B. Since Complex Systems' bonds were issued, there may have been a shift in the supply-demand relationship for money or a change in the risk towards the firm.
C. Since Complex Systems' bonds were issued, there may have been a change in the number of bonds available or a change in the coupon interest rate.
D. Since Complex Systems' bonds were issued, there may have been a change in the supply-demand relationship for money or a shift in the investors' attitudes towards the firm.
c. If the required return were at 13% instead of 9%, the current value of Complex Systems' bond would be $_____ (Round to the nearest cent.)
When the required return is equal to the coupon rate, the bond value is____the par value. In contrast in part a above, if the required return is less than the coupon rate, the bond will sell at a ____ (uts value will be greater than par)
