A large corporation would like to borrow a large amount of money for its new...
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A large corporation would like to borrow a large amount of money for its new expansion project. Instead of asking for a bank loan, it decided to borrow in the open market by selling a large number of corporate bonds. The price received from selling each bond becomes a "mini loan" that will then need to be repaid over a number of years. GIVEN: The corporation issued 9 percent coupon bonds 2 years ago. At that time they had 12 years to maturity. The face value of each is $1,000. They are making annual payments to their holders. The yield to maturity on these bonds is 6.2 percent. Today, if you wanted to buy such bonds, how much would you be paying for each bond?
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