sol4 - FIN 300 Introduction to Managerial Finance Professor...

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FIN 300 Introduction to Managerial Finance Professor H. Wang Solutions to Problem Set #4 1. a. The coupon payment is: CPN = Coupon Rate × Face Value Number of Coupons per Year = 0.055 × $1000 2 = $27.50 b. The timeline for the cash flows for this bond is (the unit of time on this timeline is six-month periods): P = 100/(1.055) 2 = $89.85 1 $27.50 0 2 $27.50 3 $27.50 60 $27.50 + $1000 2. a. 2 P 100(1.055) $89.85 == b. P = 100/(1.0595) 4 = $79.36 c. 6.05% 3. a. Because the yield to maturity is less than the coupon rate, the bond is trading at a premium. b. 40 (1 + .035) + 40 + .035) 2 + L + 40 + 1000 + .035) 14 = $1,054.60
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4. a. The price of this bond will be
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sol4 - FIN 300 Introduction to Managerial Finance Professor...

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