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    Bond price

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    Pacific Western Corporation pays an 11 percent coupon rate on debentures that are due in 20 years. The current yield to maturity on bonds of similar risk is 8 percent. The bonds are currently callable at $1,060. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds.

    Find the theoretical market value of the bonds using semiannual analysis.

    Do you think the bonds will sell for the price you arrived at in part a? Why?

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    Solution Preview

    Pacific Western Corporation pays an 11 percent coupon rate on debentures that are due in 20 years. The current yield to maturity on bonds of similar risk is 8 percent. The bonds are currently callable at $1,060. The theoretical value of the bonds will be equal to the present value of the expected cash flow from the bonds.

    Find the theoretical market value of the bonds using semiannual analysis.

    To calculate the price of the bond we need to calculate / read ...

    Solution Summary

    The bond price (Theoretical market value) has been calculated using semiannual analysis- by discounting the expected cash flow from the bonds.

    $2.19

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