Question
Suppose you want to invest in a corporate bond which currently has 14 years until maturity. The bond carries a coupon rate of 10.25 percent
Suppose you want to invest in a corporate bond which currently has 14 years until maturity. The bond carries a coupon rate of 10.25 percent (icoupon = 0.1025), payable annually, and has a face value or maturity value of $1,000 (FV = $1,000). If the current market rate on this bond is 7.25 percent (r = 0.0725), what price should you expect to pay for the bond today (PV(2020))? Also, if the market rate holds constant over the next 4 years at 7.25 percent and you think you might sell your investment in 2024 (four years from today), what price would you think you will receive for this bond in 2024 (find PV2024)? Bond Price Today (PV2020) = Bond Price in Four Years (PV2024) = Question 6 options:
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