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Bond Valuation

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If the required rate of return on both bonds is 12 percent compounded semi-annually, what is the current price of Bond M and Bond N. See attached file for full problem description.

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The solution explains how to calculate the price of a bond.

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The price will be the present value of all the payments from the bonds.

There are three discrete batches of cash flows: $1000 every six months from 6.50 years to 14 years, $1750 every six months from 14.50 years to 20 years; the final principal lump sum payment of $20,000.
We first find the ...

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