Bond A has the following terms Coupon rate of interest 10 percent Principal $1,000 Term to maturity 8 years Bond B has the following terms Coupon rate of interest 5 percent Principal $1,000 Term to maturity 8 years a What should be the price of each bond if interest rates are 10 percent b What will...

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Bond A has the following terms: Coupon rate of interest: 10 percent Principal: $1,000

Question:

Bond A has the following terms:
• rate of interest: 10 percent
• Principal: $1,000
• Term to maturity: 8 years Bond B has the following terms:
• rate of interest: 5 percent
• Principal: $1,000
• Term to maturity: 8 years
a. What should be the price of each bond if interest rates are 10 percent?
b. What will be the price of each bond if, after five years have elapsed, interest rates are 10 percent?
c. What will be the price of each bond if, after eight years have elapsed, interest rates are 8 percent?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...