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A firm issues a 10-year, $1,000 par value bond. The required rate of return is 10%. 1....

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Finance

A firm issues a 10-year, $1,000 par value bond. The requiredrate of return is 10%.

1. What is the yield to maturity on a 10-year, 9% annual coupon,$1,000 par value bond that sells for $878.00? Another bond thatsells for $1,134.20? What does a bond selling at a discount or at apremium tell you about the relationship between rd andthe bond’s coupon rate?

2.What are the total return, the current yield, and the capitalgains yield for the discount bond in Question 3 at $878.00? At$1,134.20? (Assume the bond is held to maturity and the companydoes not default on the bond.)

Answer & Explanation Solved by verified expert
4.4 Ratings (696 Votes)
Q 1 YTM for the discount bond RATE Period PMT PV FV RATE 10 9 x 1000 878 1000 1108 YTM for the premium bond RATE Period PMT PV FV RATE 10 9 x 1000    See Answer
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