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Mr. Simpson buys a $1000 bond paying bond interest at j2= 6.5% and redeemable at par...

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Finance

Mr. Simpson buys a $1000 bond paying bond interest at j2= 6.5%and redeemable at par in 20 years. He desires a yield rate of j4=7%. (a) How much did he pay for the bond? (b) After exactly 5 yearshe sells the bond. Interest rates have dropped and the bond is soldto a buyer to yield at j1 = 5%. Find sale price. (other answer hereis not correct)

Answer & Explanation Solved by verified expert
3.8 Ratings (489 Votes)
aThe Market Price of the Bond The Market Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value Face Value of the bond 1000 Annual Coupon Amount 65 1000 x 650 Annual Yield to Maturity 7 Maturity Period 20    See Answer
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Transcribed Image Text

Mr. Simpson buys a $1000 bond paying bond interest at j2= 6.5%and redeemable at par in 20 years. He desires a yield rate of j4=7%. (a) How much did he pay for the bond? (b) After exactly 5 yearshe sells the bond. Interest rates have dropped and the bond is soldto a buyer to yield at j1 = 5%. Find sale price. (other answer hereis not correct)

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