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corp fin Consider 2 bonds. Bond A is a 5-year bond with an 8% coupon, paid semiannually. Bond B is a zero coupon, 25 year
corp fin
Consider 2 bonds. Bond A is a 5-year bond with an 8% coupon, paid semiannually. Bond B is a zero coupon, 25 year bond. a). What must be the required rate of return for the 5 year bond for it to sell at par value? b). If the required rate of retum for the 5 year bond is 6%, does the bond sell at a premium or a discount? c). What is the price of the zero coupon bond if the required rate of return is 7% ? d). What must be the required rateof return of the investor willing to pay $650 for the zero coupon bond? 0). Finally, assume the 5-year bond was also offered with a 25-year duration, all else equal, Explain why investors would prefer this bond over Bond B Step by Step Solution
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