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Yu purchase a bond for 875 it pays 80 a year that is the

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You purchase a bond for $875. It pays $80 a year (that is, the semiannual coupon is 4%), and the bond matures after 10 years. What is the yield to maturity?

Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions.

  1. XY 5.25% (interest paid annually) for 20 years AB 14% (interest paid annually) for 20 years
  2. Which bond has a current yield that exceeds the yield to maturity?
  3. Which bond may you expect to be called? Why?
  4. If CD, Inc., has a bond with a 5.25% coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc., bond? Explain.

Reference no: EM13617871

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