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1. (a) Year 1-10 11-15 1625 Cash flow per year $8,000 $4,000 $8,000 Draw a well-labelled cashflow timeline and calculate the present value of the
1. (a) Year 1-10 11-15 1625 Cash flow per year $8,000 $4,000 $8,000 Draw a well-labelled cashflow timeline and calculate the present value of the above cash flow. Assume an interest rate of 10%. (8 marks) (b) A bond of 20 years maturity is left with 5 years to maturity today. Its coupon rate is 10%, paying annual coupon with the par value of $1,000. What is the price of the bond today if the yield to maturity is 12%? Would bond price be higher or lower if the coupons are paid semi-annually? Show your calculations. (8 marks)
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