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Suppose you purchased a corporate bond with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. This means that you receive a $50 interest payment at the end of each six-month period for 10 years (20 times). Then, when the bond matures, you will receive the principal amount (the face value) in a lump sum. Three years after the bonds were purchased, the going rate of interest on new bonds fell to 6% (or 6% compounded semiannually). What is the current market value (P) of the bond (three years after its purchase)?

Suppose you purchased a corporate bond with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. This means that you receive a $50 interest payment at the end of each six-month period for 10 years (20 times). Then, when the bond matures, you will receive the principal amount (the face value) in a lump sum. Three years after the bonds were purchased, the going rate of interest on new bonds fell to 6% (or 6% compounded semiannually). What is the current market value (P) of the bond (three years after its purchase)?

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 1P
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Suppose you purchased a corporate bond with a
10-year maturity, a $1,000 par value, a 10% coupon
rate, and semiannual interest payments. This means
that you receive a $50 interest payment at the end of
each six-month period for 10 years (20 times). Then,
when the bond matures, you will receive the principal
amount (the face value) in a lump sum. Three years
after the bonds were purchased, the going rate of
interest on new bonds fell to 6% (or 6% compounded
semiannually). What is the current market value (P)
of the bond (three years after its purchase)?

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