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A firm has just issued a bond that has a face value of $1000, a coupon rate of 8 percent paid sem


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The Question

A firm has just issued a bond that has a face value of $1000, a coupon rate of 8 percent paid semi-annually, and matures in 8 years. The bonds were issued at a discount ( $950.35) with a yield to maturity of 8.88%. Assume that 3 years from now, the bond trades to earn an effective annual yield to maturity of 10%.


At what price should this bond be trading for at the beginning of year 4? 


Face value

 

Coupon rate

 

Years

 

Price

 

YTM

 

EAY 3

 

Price Year 4 $1,000

 

8%

 

8

 

$950.35

 

8.88%

 

10%

 

$922.78

 


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Solution #00070277

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A firm has just issued a bond that has a face value of $1000, a coupon rate of 8 percent paid sem.zip

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This paper was answered on 21-Sep-2019

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