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14-10-2022
Business

Answered

ABC Inc has issued 10-year bonds that make semiannual coupon payments at a rate of 6
percent. The current market rate for similar securities is 7 percent.
1. What is the current market value of one of these bonds?
2. Would you purchase one of these bonds if it was offered to you at $900? Why?
3. What do you expect would happen to the bond's price if rates in the market (i) decrease
percent or (ii) increase?
4. What is your Effective Annual Yield if you purchase the bond at $900 and hold it to
maturity?

Answer :

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