Complex Systems has an outstanding issue of $1,000 -par-value bonds with a 15 % coupon interest rate. The issue pays interest annually and has 14 years remaining to its maturity date.

a. If bonds of similar risk are currently earning a rate of return of 14 %, 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 15 % instead of 14 %, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.

Question

Zechariah Nielsen

Business

5 April, 19:12

Complex Systems has an outstanding issue of $1,000 -par-value bonds with a 15 % coupon interest rate. The issue pays interest annually and has 14 years remaining to its maturity date.

a. If bonds of similar risk are currently earning a rate of return of 14 %, 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 15 % instead of 14 %, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.

+5

Answers (1)

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Alonso · Answer 1

So the Bond must sell for $1,156.47

Explanation:

FV - 1000

PMT (Payment Per Period) - 120

N 16

Rate 10.00%

PV $1,156.47

So the Bond must sell for $1,156.47

Reasons could be reduced expected inflation than when Complex issued the bonds, or possibly strong demand for bonds due an improved economy.

It he required return were 12%, the bonds would sell at par, or at 1,000.