2)A bond with a $1,000 face value and a 9 percent annual coupon pays interest annually. The...
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Question:
2)A bond with a $1,000 face value and a 9 percent annual coupon pays interest annually. The bond matures in 12 years.
a)Determine the value of the bond to a friend of yours with a required rate of return of 11%.
b)A zero coupon bond with similar risk is selling for $300. The bond has a face value of $1,000 and matures in 12 years. Your friend asks you which bond she should invest in, the zero coupon bond or the bond in part (a). Which bond do you recommend, and why? Assume the market price of the bond in part (a) is $720.
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