Large corporations often need to borrow a large amount of money for, say, their expansion projects....
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Large corporations often need to borrow a large amount of money for, say, their expansion projects. Instead of asking for a bank loan, they can decide to borrow in the open market by selling a large number of corporate bonds. The price received from selling each bond becomes a "mini loan" that will then need to be repaid over a number of years. GIVEN: • The corporation issued 8 percent coupon bonds 3 years ago. . At that time they had 17 years to maturity. • The face value of each is $1,000. • They are making semiannual payments to their holders. • The yield to maturity on these bonds is 4 percent. Today, if you wanted to buy such bonds, how much would you be paying for each bond? Large corporations often need to borrow a large amount of money for, say, their expansion projects. Instead of asking for a bank loan, they can decide to borrow in the open market by selling a large number of corporate bonds. The price received from selling each bond becomes a "mini loan" that will then need to be repaid over a number of years. GIVEN: • The corporation issued 8 percent coupon bonds 3 years ago. . At that time they had 17 years to maturity. • The face value of each is $1,000. • They are making semiannual payments to their holders. • The yield to maturity on these bonds is 4 percent. Today, if you wanted to buy such bonds, how much would you be paying for each bond?
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