Alpha Geek

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Category > Business & Finance Posted 08 May 2017 My Price 3.00

You are evaluating two similar bonds

You are evaluating two similar bonds. Both mature in four years, both have a $1,000 par value, and both pay a coupon rate of 10 percent. However, one bond pays that coupon in annual installments, whereas the other makes semiannual payments. Suppose you require a 10 percent return on either bond. Should these bonds sell at identical prices or should one be worth more than the other? Use Equations 4.2a and 4.3a, and let r 10%. What prices do you obtain for these bonds? Can you explain the apparent paradox?

 

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Alpha Geek
(8)
Status NEW Posted 08 May 2017 08:05 AM My Price 3.00

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Attachments

file 1494233890-1954977_1_636297272806749985_Bond.xlsx preview (30 words )
Pa-----------r V-----------alu-----------eco-----------upo-----------nFi-----------rst----------- bo-----------nd -----------pay-----------Ann-----------ual-----------lyS-----------eco-----------nd -----------Bon-----------d P-----------ayS-----------emi-----------ann-----------ual-----------ySe-----------mia-----------nnu-----------all-----------y C-----------oup-----------onR-----------ate----------- of----------- Re-----------tur-----------nFi-----------rst----------- bo-----------nd -----------pri-----------ceS-----------eco-----------nd -----------Bon-----------d P-----------ric-----------eSe-----------mia-----------nnu-----------all-----------y r-----------ate-----------Thi-----------s b-----------oth----------- re-----------sul-----------ts -----------are----------- di-----------ffe-----------ren-----------t d-----------ue -----------to -----------the----------- se-----------con-----------d p-----------ayi-----------ng -----------sem-----------ian-----------nua-----------lly----------- pa-----------yme-----------nt -----------and----------- co-----------upo-----------n r-----------ate----------- co-----------mpo-----------und-----------ing----------- se-----------mia-----------nnu-----------all-----------y. -----------
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