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The Nickelodeon Manufacturing Co.

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The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of:

a) the bonds with 3 years to maturity?
b) the bonds with 10 years to maturity?
c) Explain the relationship between the number of years until a bond matures and its price.
d) Explain the relationships between interest rates and the price of bonds as it relates to (i) premium (ii) Par and (iii) Discount.

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Solution Summary

This solution is comprised of a detailed explanation to compute the current price of the bonds with 3 years to maturity and the bonds with 10 years to maturity, explain the relationship between the number of years until a bond matures and its price, and explain the relationships between interest rates and the price of bonds as it relates to (i) premium (ii) Par and (iii) Discount.

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The Nickelodeon Manufacturing Co. has a series of $1000 par value bonds outstanding. Each bond pays interest semi-annually and carries an annual coupon rate of 7%. Some bonds are due in three years while others are due in 10 years. If the required rate of return on bonds is 10%, what is the current price of:

a) the bonds with 3 years to maturity?

We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price/current price
...

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