Mathematics, 30.07.2020 20:01, live4dramaoy0yf9
Suppose there is a bond in ABC Company that that pays coupons of 8.5%, and suppose that these coupons are paid annually.
Suppose the face value of the ABC bond is $1000 and the maturity is 11 years.
a) If the appropriate discount rate for this bond is 6%, what would you be willing to pay for ABC’s bond?
b) If a comparable company, XYZ, has a 7.0% coupon bond with a maturity of 9 years and a face value of 1000, and that bond is trading in the market for $994.50, what would you be willing to pay for ABC’s bond?
c) Suppose you find that the true fair value for ABC bond is $1200.00, but you see that the bond trading for $1051.00, what would you recommend?
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