Determine market price for the bond using interest rate

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A coupon bond has a face value of $1,000 and pays interest atthe rate of 10% per year with interest payments made semi-annually.The bond matures 5 years from today. Assume an interest payment was just made.

a)Today, the market interest rate for bonds with similar riskis 6% per yeat compounded semi-annually. Determine today's market price for the bond using today's market interst rate to discountall future cash flows to maturity.

b) But, the market interest rate can change-let's say thattoday's rate is 12% per year coumpounded semi-annually. Determines today's market price for the bond using the new 12% rate todiscount all future bond cash flows to maturity.

Reference no: EM13244397

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