Question:
Complex Systems has an outstanding issue of $1,000-par value bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years reamining to its maturity date.
1) If bond of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today?
2) Describe the two possible reason why the rate on similar- risk bond is below the coupon interest rate on the Complex Systems bond?
3) If the required return were at 12% instead of 10%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss?