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    Bond price

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    A company has outstanding bonds with a 6 year maturity, $1,000 par value and 7% coupon paid semiannually and those bonds sell at their par price. This same company has another bond with the same risk, maturity and par value but this second bond pays a 7% annual coupon. What is an estimate of the price of the annual coupon bond?

    A. $994.18
    B. $998.56
    C. $1,002.26
    D. $1,008.30
    E. $1,015.89

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    Solution Preview

    The semi annual bonds sell at par and so the effective yield is (1+3.5%)^-1 = ...

    Solution Summary

    The solution explains how to calculate the bond price.