Question: ONCF has issued a 4% bond maturing in 5 years. The bond pays semi-annual coupon. If the required rate of return is 2.5%, compute the

ONCF has issued a 4% bond maturing in 5 years.

The bond pays semi-annual coupon.

  1. If the required rate of return is 2.5%, compute the PV of the bonds.
  2. What will happen to the price of the bond:
  1. Interest rate increases to 4%?
  2. Interest rate decreases to 1.5%?

Explain in details all your answers.

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