You are considering purchasing a bond at the end of this year. The bond has a coupon rate of 10.5 percent, interest payments are made annually and the bond matures in 20 years. If your required pretax rate of return is 14 percent, what is the maximum price you would be willing to pay for a 20-year, 10.5 percent bond? Assume the bond pays interest annually. Would you purchase the bond it its current price is 750.00?
The solution answers the question below.