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Bond's value

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EFGH corporation has a coupon bond outstanding with a 10% coupon rate (interest is payable annually). The bond has 10 years to maturity and a face value of $1000; similar bonds currently yield 7%. By prior agreement, EFGH will skip the coupon payments in years 4, 5 and 6. These payments will be repaid without interest, at maturity.

(a) What is the bond's value?
(b) Find the bond's value if the discount rate is 5% and coupon payments are made in years 4,5 and 6 as well as the other years.

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The solution provides the steps to compute the bond's value.

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EFGH corporation has a coupon bond outstanding with a 10% coupon rate (interest is payable annually). The bond has 10 years to ...

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