Question
A ten-year $1,000 bond with a coupon rate of 9% payable semiannually is redeemable at $1,100 at the end of ten years. (a) If Peter
A ten-year $1,000 bond with a coupon rate of 9% payable semiannually is redeemable at $1,100 at the end of ten years. (a) If Peter is expecting an annual yield rate of not less than 6% convertible semiannually in his investment, find the range of prices of the bond at the time of issue such that Peter is willing to buy the bond. (b) If Peter purchases the bond at $1,250, find his expected annual yield rate convertible semiannually and construct the bond amortization schedule for the first two years. (c) After Peter has received the fourth coupon payment at the end of the second year, he immediately sells the bond at $1,200. Find the annual yield rate convertible semiannually during this two-year investment period.
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