2 Reno rentals has issued bonds that have a 10 coupon rate p

2. Reno rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1000, and a yield to maturity of 8.5%. a) What is the price of the bonds b) What would happen if expected inflation rose by 3%, causing r-10967 c) What would happen if inflation fell, and rd declined to 7%? d) What does the result tell you about the relationship between interest rate and bond value?

Solution

Solution:(a): Calculation of the price of the bond:

Face value= $1,000

PMT = 1000*10%*6/12 = $50

N = 16

R = 8.5%/2 = 4.25%

PV = $1,085.80

Note: Since, I was confident about the solution of part(a) thats why I did it only.