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    Bond valuation

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    This morning IBM issued a five year $100,000 face value bond paying yearly interest with a 5% coupon rate. This afternoon interest rates jumped to 6%. What will the bond now sell for?

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    Solution Preview

    The price of the bond is always the present value of interest and principal. The discounting rate used to calculate the present value is the market rate of interest. In this case the market rate changed when the bond was issued and so we would need to find the ...

    Solution Summary

    This solution explains how to determine the price of a bond in the given finance problem.