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You are offered the opportunity to buy a Note which has a principal amount of $50,000. The Note has a stated interest rate of 5
You are offered the opportunity to buy a Note which has a principal amount of $50,000. The Note has a stated interest rate of 5 percent. (That is, the note will make annual interest payments of $2,500.) The Note matures in 10 years at which time the note will be paid off. If the market interest rate is 7%, what is the value of the Note today? Suppose the price of the bond in problem 9 is $40,000. What interest rate would an investor earn on this bond? (That is, what is the yield to maturity of this bond?)
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