Assume that you are considering the purchase of a $1,000 par value bond that pays...
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Assume that you are considering the purchase of a $1,000 par value bond that pays cupon of $70 each six months and has 10 years to go before it matures. If you buy this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a nominal annual rate of 16%, but you expect the market to require a nominal rate of only 12% when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond?
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