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    Current Market Value of a Firm's Debt

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    Corporation's balance sheet as of January 1, 2006 is as follows:

    Long-term debt (bonds, at par) $10,000,000
    Preferred stock 2,000,000
    Common stock ($10 par) 10,000,000
    Retained earnings 4,000,000
    Total debt and equity $26,000,000

    The bonds have a 4% semiannual coupon rate and a par value of $1,000. They mature on January 1, 2016. If the yield to maturity is 12%, what is the current market value of the firm's debt?

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    Solution Summary

    The solution calculates the current market value of the firm's debt.

    $2.19

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