Assume the following characteristics of a corporate bond Par

Assume the following characteristics of a corporate bond:

•Par Value = $1,000

•Coupon Rate = 6.0%

•Maturity Date = June 30, 2038

•Coupon Payments are made Semi-Annually

•Current Market Yield-to-Maturity (Interest Rate) on this bond = 5.2%

•The Issue Date of the Bond is not given

(1) What is the market value of this bond?

(2) If market interest rates rise for the bond described above, what will happen to the market value of the bond? Give an example.

FV = 1000, PMT = 30, N = 40, rate = 2.6%

use PV function in Excel

market value of the bond = 1098.74

b. If the market rates rise for the bond, then the price of the bond will drop. Let us say the market rate is 8%

FV = 1000, PMT = 30, N = 40, rate = 4%

use PV function in Excel

new market value of the bond = 802.07