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Apple, AIG. and Vanguard issue a $1,000 par value bond. Your friend is thinking of purchasing these bonds, but is unsure of how to analyze.
Apple, AIG. and Vanguard issue a $1,000 par value bond. Your friend is thinking of purchasing these bonds, but is unsure of how to analyze. She comes to you for help with the following. A) See the information below. Assuming interest is paid on a friend's required rate of return is as follows: Apple 6%, AIG 8%, and Vanguard 10% yearly basis, calculate the values of the bonds when your Vanguard pple AIG Coupon Interest rate Years to maturity 5.25 4.25 4.75 30 10 B) Assuming the bonds are selling for the following amounts. What are the expected rates of return for each bond? APPLE-$1,100 AIG $1,030 Vanguard $1,015 C) What change occurs in value if (1) the required rate of return increases by 2% (2) the required rate of return decreases by 2%? D) Should you recommend your friend to buy the bonds? Why or why not
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