Question: Tinker Spy Corp. has a high-yield junk bond with the following features: Principal ...... $1,000 Coupon ...... 0% for years 15 and 10% for years

Tinker Spy Corp. has a high-yield junk bond with the following features:
Principal ...... $1,000
Coupon ...... 0% for years 1–5 and 10% for years 5 through 10
Maturity ...... 10 years
The current interest rate on comparable debt is 10 percent. If you expect that the interest rate will be 8 percent five years from now, what is your potential gain or loss if your expectation is correct and interest rates are 8 percent after five years?

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At 10 percent the bonds current price is 1003791 621 1000386 621 If the bon... View full answer

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