Question
Ileri Computer has 10 percent coupon bond on the market with 15 years to maturity with a par value of $1,000. The bond makes semi-annual
Ileri Computer has 10 percent coupon bond on the market with 15 years to maturity with a par value of $1,000. The bond makes semi-annual interest payments. The required rate of return on this bond is 12% per year. a. Calculate the current market value of this bond. b. Find the current yield of the bond. c. If next years rate of inflation is lower than expected, briefly discuss what you would expect to happen to the price of the bond? Why? d. If the price of this bond increases to $668.5 one year later, what is the expected rate of return of the new investor in this bond (i.e., its yield to maturity)? What is the rate of return of the investor who purchased this bond one year ago and sold it after receiving the second coupon payment?
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