Question: Basic bond valuation Complex Systems has an outstanding issue of $1,000-par- value bonds with a 12% 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 a 12% coupon interest rate. The issue pays interest annually and

has 16 years remaining to its maturity date.

a. If bonds of similar risk are currently caring a 10% rate of return, 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 10%, 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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