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A bond with an unknown face value and a coupon rate of 10% (paid annually) matures in 10 years from now. The required return (YTM)
A bond with an unknown face value and a coupon rate of 10% (paid annually) matures in 10 years from now. The required return (YTM) is 5%.
- Is the bond sold at premium or at discount? Explain!
- If the face value of the bond is $1000, what is the current market price of the bond?
- What is the current yield of the bond in part ii)?
- Suppose, interest rates and the required return for the bond in part ii) change, so that the market price of this bond is now $980. What is the new required return/yield to maturity of this bond? Did interest rates go up or down?
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Introduces Quantitative Finance
Authors: Paul Wilmott
2nd edition
470319585, 470319581, 978-0470319581
