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You are considering investing in a BBB-rated corporate bond with a 10-year maturity and a 5% coupon rate (with annual coupons). The face value of
You are considering investing in a BBB-rated corporate bond with a 10-year maturity and a 5% coupon rate (with annual coupons). The face value of a bond is $1,000. Assuming that the bond rating is appropriate given the default risk of the company, that the risk free rate is (a+b)/2 percent, and the default spread for BBB rated corporate bonds is 2.5%. Calculate the price of the bond. a = 5 b=5
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