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Please help me solve part B (c-d) using Part A numbers. Part A The value of the bond is determined by the present value of
Please help me solve part B (c-d) using Part A numbers.
Part A The value of the bond is determined by the present value of the cash flows expected to produce. The value of a 10 year, $1,000 par value bond with a 10 percent annual coupon is Bond price = Coupon payment *(1-(1+r)^ n ) /r + Par/ (1+r)n n= 10-years Par value = $1,000 Coupon rate=10% Annual coupon = 0.1*1,000 =$100 Part B c. What would be the value of the bond described in Part a. if, just after it had been issued, the expected inflation rate drop by 1 percentage point, causing investors to require a 9 percent return? Would we now have a discount or a premium bond? d. What would happen to the value of the 10-year bond over time if the required rate of return remained at 11 percent, or if it remained at 9 percent? Would we now have a premium or a discount bond in either situationStep by Step Solution
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