Suppose a corporation’s bonds have 8 years remaining to maturity. In addition, suppose the bonds have a $1000 face value, and the coupon interest rate is 7%. The bonds have a yield to maturity of 10%. Complete parts (a) and (b) below.

a) Compute the market price of the bonds if interest is paid annually.

b) Compute the market price of the bonds if interest is paid semiannually.

Please do work in word, not excel if possible.

a) Compute the market price of the bonds if interest is paid annually.

b) Compute the market price of the bonds if interest is paid semiannually.

Please do work in word, not excel if possible.

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SOLUTION:

a.

Annual Cash Inflows = Face Value * Interest Rate

Annual Cash Inflows = $1,000 * 7%

Annual Cash Inflows

$70.00

Year

Cash

flows

PVF @

10%

Present

Value

1

2

3

4

5

6

7

8

8

$70.00...