Question
Consider a coupon bond that pays $350 every year and repays its principal amount of $5,000 at the end of four years. If the current
Consider a coupon bond that pays $350 every year and repays its principal amount of $5,000 at the end of four years. If the current market rate is 6%, set up the equation that would help you find the present value of this bond? (b) Please calculate the present value. (c) What is the coupon rate of this coupon bond when it was issued? (d) What would you expect to happen to the present value calculated in (b) if the market rate fell to 4%? (e) Suppose this coupon bond sold for $4,000 at its start, please set up the equation you would use to calculate the yield to maturity. How would the yield to maturity compare to the coupon rate (increase/decrease/remain the same)?
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