Bond prices and maturity dates. Moore Company is about to issue a bond with quar
ID: 2782128 • Letter: B
Question
Bond prices and maturity dates. Moore Company is about to issue a bond with quarterly coupon payments, an annual couponrate o 12%, and a parva $5,000. The yeldto maturity for this bond is 15%. e of a. What is the price of the bond if it matures in 5, 10, 15, or 20 years? b. What do you notice about the price of the bond in relationship to the maturity of the bond? s (Round to the nearest cent.) What is the price of the bond if it matures in 15 years? (Round to the nearest cent.) What is the price of the bond if it matures in 20 years? Round to the nearest cent.) b. What do you notice about the price of the bond in relationship to the maturity of the bond? (Select the best response.) A. As the time to maturity increases, the price of the bond increases first and then decreases. O B. As the time to maturity increases, the price of the bond increases. O C. As the time to maturity increases, the price of the bond decreases first and then increases O D. As the time to maturity increases, the price of the bond decreases. Click to select your answer(s). 6Explanation / Answer
Bond price can be calculated using PV function on a calculator
For 1, N = 5 x 4, PMT = 12% x 5000 / 4, FV = 5000, I/Y = 15%/4
=> Compute PV = 4,478.9
and so on for other bonds by changing N.
D is correct. As maturity period increases, the bond price decreases in this case.
Years Price 5 $4,478.89 10 $4,229.34 15 $4,109.83 20 $4,052.60