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Arizona Public Utilities issued a bond that pays $60 in interest, with a $1,000 par value. It matures in 30 years. The market's required yield to maturity on a comparable-risk bond is 8 percent.

a. Calculate the value of the bond.

b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 10 percent or (ii) decreases to 7 percent?

c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds.

d. Assume that the bond matures in 15 years instead of 30 years. Recompute your answers in parts a and b.

e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92833134

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