calculate and report the following information: Value these bonds assuming a mar
ID: 2775011 • Letter: C
Question
calculate and report the following information:
Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid annually.
Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid semi-annually.
Value these bonds assuming a market rate on similar risk bonds is 12% and interest is paid annually.
Assuming both bonds were issued at the same time, why would the Co. Y bond pay a higher coupon rate?
Assume you are evaluating whether to purchase the following $1,000 face value bonds:
Co. X bond with a 6% coupon rate that matures in 9 years.
Co. Y bond with an 11% coupon rate that matures in 7 years.
Explanation / Answer
Company X Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid annually $ 934.85 Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid semi-annually. $ 934.05 Value these bonds assuming a market rate on similar risk bonds is 12% and interest is paid annually $ 680.31 Company Y Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid annually $ 1,215.57 Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid semi-annually. $ 1,218.41 Value these bonds assuming a market rate on similar risk bonds is 12% and interest is paid annually $ 954.36 Compnay Y would pay a higher price because it would have a lower credit rating than Company X
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