Question
An issue of bonds with par of $1,000 matures in 8 years and pays 9% p.a. interest semi-annually. The market price of the bonds is
An issue of bonds with par of $1,000 matures in 8 years and pays 9% p.a. interest
semi-annually. The market price of the bonds is $955 and your required rate of return
is 8%.
(a) Calculate the bonds expected rate of return.
(b) Calculate the value of the bond to you, given your required rate of return.
(c) Should you purchase the bond? (State the reason for your decision.)
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a To calculate the bonds expected rate of return we need to compare the bonds coupon payment and its capital gain or loss to the initial investment Th...
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Step: 2
Step: 3
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Corporate Finance A Focused Approach
Authors: Michael C. Ehrhardt, Eugene F. Brigham
4th Edition
1439078084, 978-1439078082
