Question
Alpha Co, issued $10,000,000 of corporate bonds with 25-year maturity five years ago. The bonds have a coupon rate of 7%, pay interest semiannually, and
Alpha Co, issued $10,000,000 of corporate bonds with 25-year maturity five years ago. The bonds have a coupon rate of 7%, pay interest semiannually, and have a par value of $1,000 per bond. The bonds are currently trading at a price of $938.81 per bond. (3 points) a. What is the bond's effective yield to maturity? b. If the bond's yield to maturity remains constant as we approach the maturity day, what effect should this have on the bond price? Justify your answer. c. If the yield to maturity will indeed remain constant in the future. What will be the bond price in two years from now?
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