4. Patsy Tebeau is considering investing in a bond currently selling for $8,785.07. The bond has four

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4. Patsy Tebeau is considering investing in a bond currently selling for $8,785.07.

The bond has four years to maturity, a $10,000 face value, and an 8% coupon rate.

The next annual interest payment is due one year from today. The appropriate discount rate for investments ofsimilar risk is 10%.

a. Calculate the intrinsic value of the bond. On the basis of this calculation, should Patsy purchase the bond?

b. Calculate the yield-to-maturity of the bond. On the bases of this calculation, should Patsy purchase the bond?

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Investments

ISBN: 9788120321014

6th Edition

Authors: William F. Sharpe, Gordon J. Alexander, Jeffery V. Bailey

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