Complex Systems has an outstanding issue of $1,000-par-value bonds with a 15% coupon interest rate. The issue pays interest annually and has 14 years remaining to its maturity date.

a. If bonds of similar risk are currently earning a rate of return of 14%, how much should the Complex Systems bond sell for today?

b. Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.

c. If the required return were at 15% instead of 14%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.

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cancinodavidq cancinodavidq · Answer 1 · 2019-12-13T21:28:16+01:00

Answer:

So the Bond must sell for $1,156.47

Explanation:

FV -1000

PMT (Payment Per Period) -120

N 16

Rate 10.00%

PV $1,156.47

So the Bond must sell for $1,156.47

Reasons could be reduced expected inflation than when Complex issued the bonds, or possibly strong demand for bonds due an improved economy.

It he required return were 12%, the bonds would sell at par, or at 1,000.

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