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Suppose a bond with no expieration date has a face value of 10,000 and anually p

ID: 1108727 • Letter: S

Question

Suppose a bond with no expieration date has a face value of 10,000 and anually pays a fixed amount of interest of 800$. (In the table provided. In the table provided to the right, caluclate and enter either the interest rate of the bond would yield to a bond price at each of the interest yields shown.

Chapter 34 Problem #2

A. When the bond price is $8000, what is the interest rate?

B. If the interest rate is 8.9% what is the bond price?

C. If bond price in $10,000, what is the interest rate?

I need some step by step help on this homework please. thank you

Explanation / Answer

Interest Rate = Coupon / Bond Price

A.

Interest Rate = 800 / 8000

= 0.1 or 10%

B.

Interest Rate = Coupon / Bond Price

0.089 = 800 / Bond Price

Bond Price = 800 / 0.089

= $8,988.76

C.

Interest Rate = 800 / 10,000

= 0.08 or 8%

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