Shannon Corporation has two bonds outstanding. Both bonds have coupon rates of 7%. Current yields for bonds of equal risk are 8%. Bond A has a maturity of 20 years, while Bond B has a maturity of 10 years. Interest is paid semiannually. Calculate the following for both bonds using semiannual analysis.
a) If market rates for bonds of equal risk fell to 6%, what would be the maximum price an investor would be willing to pay for these bonds?
b) If market rates for bonds of equal risk remained at 8%, what would be the bonds' current worth?
c) If market rates for bonds of equal risk rose to 10%, what would be the bonds' theoretical value?

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The Answer of Shannon Corporation has two bonds outstanding. Both bonds have coupon rates of 7%. Current yields for bonds of equal risk are 8%. Bond A has a maturity of 20 years, while Bond B has a maturity of 10 years. Interest is paid semiannually. Calculate the following for both bonds using semiannual analysis.
a) If market rates for bonds of equal risk fell to 6%, what would be the maximum price an investor would be willing to pay for these bonds?
b) If market rates for bonds of equal risk remained at 8%, what would be the bonds' current worth?
c) If market rates for bonds of equal risk rose to 10%, what would be the bonds' theoretical value?

Shannon Corporation Has Two Bonds Outstanding