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A & B Corporation issued bonds for 10 years, with face value of $10,000 and a...

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Finance

A & B Corporation issued bonds for 10 years, with face valueof $10,000 and a 6% annual coupon rate. What is the current marketprice of the bond if the market rate is 8%? Assume semi-annualpayments.

How would your answer change if the market rate falls to 6%?

Answer & Explanation Solved by verified expert
3.8 Ratings (621 Votes)

                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =10x2
Bond Price =? [(6*10000/200)/(1 + 8/200)^k]     +   10000/(1 + 8/200)^10x2
                   k=1
Bond Price = 8640.97
                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =10x2
Bond Price =? [(6*10000/200)/(1 + 6/200)^k]     +   10000/(1 + 6/200)^10x2
                   k=1
Bond Price = 10000

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Transcribed Image Text

A & B Corporation issued bonds for 10 years, with face valueof $10,000 and a 6% annual coupon rate. What is the current marketprice of the bond if the market rate is 8%? Assume semi-annualpayments.How would your answer change if the market rate falls to 6%?

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