Question: Basic bond valuation Complex Systems has an outstanding issue of $1,000 -par-value bonds with a12 % coupon interest rate. The issue pays interest annually and

Basic bond valuation

Complex Systems has an outstanding issue of $1,000 -par-value bonds with a12 % coupon interest rate. The issue pays interest annually and has 11 years remaining to its maturity date.

a.If bonds of similar risk are currently earning a rate of return of 11%, how much should the Complex Systems bond sell for today?

b.Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex Systems bond.

c.If the required return were at 12 % instead of 11 %, what would the current value of Complex Systems' bond be? Contrast this finding with your findings in part a and discuss.

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