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BACKGROUND: The Company is issuing 10,000 bonds, each with a face value of $975, a stated rate of 8.5%, and a 20-year term. When the
BACKGROUND: The Company is issuing 10,000 bonds, each with a face value of $975, a stated rate of 8.5%, and a 20-year term. When the bonds are issued, the market rate is 7.1%. REQUIRED:
a) What is the maximum price an investor will pay for a single bond? b) What is the total amount of capital collected by the Company if all of the investors pay the maximum price?
BACKGROUND: 8 years later, an investor sells his bond for $950. REQUIRED:
c) What is the actual yield to maturity (YTM)? d) If the YTM were 8.1%, what would be the current price?
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