Question
Basic bond valuation: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 14% coupon interest rate. The issue pays interest annually and has
Basic bond valuation: Complex Systems has an outstanding issue of $1,000-par-value bonds with a 14% coupon interest rate. The issue pays interest annually and has 13 years remaining to its maturity date.
a.If bonds of similar risk are currently earning a rate of return of 11%,how much should the Complex Systems bond sell for today?
b.Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.
c.If the required return were at 14% instead of 11%, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.
EXCEL
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