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The Coleman-Smith Corporation has an outstanding bond that matures in exactly 8 years. The bonds have an annual coupon of 3%. The current market interest
The Coleman-Smith Corporation has an outstanding bond that matures in exactly 8 years. The bonds have an annual coupon of 3%. The current market interest rate is 9%.
Assume the bonds have a face value of 1,000. What should be the bond's price?
Now assume that the last 4 coupons were stripped from the bond and sold off separately. What would be the value of the remaining bond?
(As a technical matter, you should assume that the yield curve is flat. If you don't know why this is important, don't worry about it.)
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