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Assume that ABC Company and XYZ Company have similar $100,000 par value bond issues outstanding. The bonds are equally risky. However The ABC Company bond
Assume that "ABC" Company and XYZ" Company have similar $100,000 par value bond issues outstanding. The bonds are equally risky. However The "ABC" Company bond has an annual coupon rate of 8% and matures 20 years from today. The "XYZ" Company bond has a coupon rate of 8%, with interest paid semiannually, and it also matures in 20 years. Based on the above-given information, the difference in the current market prices of the two bonds if the market rate is equal to 12% should be equal
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