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A manufacturer has experienced a market reevaluation lately due to a number of lawsuits. The firm has a bond issue outstanding with 20 years to maturity and a coupon rate of 7% (paid annually). The required rate has now risen to 10%. The par value of the bond is $1,000.
1. What would be the selling price of the same 7% coupon bond one year later, if the market interest rate remains at 10%?
2. If the 7% coupon bond with time to maturity of 20 years is selling for $901.82, what is the yield to maturity of the bond?
3. What is the current yield of this bond?
4. What is the current value of these securities?
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1. The selling price of the bond is the present value of interest and principal. The annual interest is 1,000X7%=$70 and principal amount is $1,000. Now there are 20 years to maturity and so after 1 year there would be 19 years to maturity. The discounting rate ...
The solution explains some questions relating to bond valuation