BA350 Financial Management: 5-21 Suppose Hillard Manufacturing sold an issue of bonds

BA350 Financial Management

5-21 Bond Valuation and Changes in Maturity and Required Returns
Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.
a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell?
b. Suppose that, 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell?
c. Suppose, as in part a, that interest rates fell to 6%, 2 years after the issue date. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time?
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