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MNO Inc. has issued a 9% bond that is to mature in 6 years. The bond had a $1,000 par value, and interest is due
- MNO Inc. has issued a 9% bond that is to mature in 6 years. The bond had a $1,000 par value, and interest is due to be paid semi-annually. If your required rate of return is 12%.
- what price would you be willing to pay for the bond? [1.5 point]
- Will the bond trade at discount, premium or par? [0.5 point]
- Consider a one-year XYZ bond that promises a coupon rate of 8% and has a principal (par value) of $1,000. Further, assume the bond is currently trading for $900.
- Determine the Promised Yield to Maturity. [1 point]
- Continuing with part I above, assume there is a 30% probability of default on XYZ bond and if the bond defaults, the bondholders will receive 70% of the principal and interest owed. What is the Expected Yield to Maturity? [1 point]
List any two key relationships with reference to bond valuation [0.5*2 = 1 point]
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