Question
ABC corporation has outstanding bonds with a face value of $1,000 that mature in ten years. The coupon rate is 9% and coupons are paid
ABC corporation has outstanding bonds with a face value of $1,000 that mature in ten years. The coupon rate is 9% and coupons are paid semiannually.
(A) Suppose market interest rates rise, so that investors require a return of 12% on ABC bonds. What is the intrinsic value of the bond if it is priced to yield 12%?
(B) Suppose you purchased an ABC bond at its 82.75 quoted market price. Now, interest rate have fallen and investors require a return of 9% on these bonds. If you sell the bond when it is priced to yield 9%, what is your gain or loss?
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Corporate Finance The Core
Authors: Jonathan Berk, Peter DeMarzo
4th Global Edition
1292158336, 9781292158334
