Question: John is considering purchasing a bond with a face value of $5500 and a coupon rate of 12 percent, due in 10 years. Inflation

John is considering purchasing a bond with a face value of $5500 and a coupon rate of 12 percent, due in 10 years. Inflation is expected to be 5 percent over the next 10 years. John's real MARR is 18 percent, compounded semiannually. What is the present worth of this bond to John?

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SOLUTION To find the present worth of the bond to John we need to consider the effect of inflation and discount the future cash flows at Johns real MA... View full answer

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