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Assume that you wish to purchase a 30-year bond that has a maturity value of $1,000 and a coupon interest rate of 10%, paid semiannually.
Assume that you wish to purchase a 30-year bond that has a maturity value of $1,000 and a coupon interest rate of 10%, paid semiannually. If you require 8% rate of return on this investment, what is the maximum price that you should be willing to pay for this bond?
a. $1,111
b. $1,450
c. $1,352
d. $1226
5. Based on the above question, if the market price of this bond is $1200 per bond, which of the following statement is right?
- The bond is overpriced and should be sold
- The bond is underpriced and should be sold
- The bond is overpriced and should be bought
- The bond is underpriced and should be bought
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