Bond Value
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The Southeast Investment Fund buys 70 bonds of the Hilary Bakery Corporation through its broker. The bonds pay 9% annual interest. The yield to maturity (market rate of interest) is 12%. The bonds have a 25-year maturity. Using an assumption of semiannual interest payments:
a. Compute the price of a bond (refer to "semiannual interest and bond prices" )
b. Compute the total value of the 70 bonds.
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This solution provides a detailed step by step explanation of how to determine the value of the given bond.
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The price of the bond is the discounted sum of the future interest payments and the repayment of the principal amount. In this case, there are 25 years to maturity and the interest is semiannual. There would be 50 interest payments and 1 principal repayment. The ...
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