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PROBLEMS_ch7_solutions - $940 $880 $800 and $735...

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MGMT 310 Practice problems Relevant material: lectures 9/10, chapter 7 Chapter 7, problems: 12, 17 (assume $1000 face values) Additional problems: A) Firm X needs to raise money for a project and wants to issue some 20-year bonds. Firm X currently has 10% coupon bonds on the market that mature in 20 years and have a yield to maturity of 8%. What coupon rate should the firm set on its new bonds if it wants them to sell at par value? B) Firm X currently has several different issues of zero-coupon (i.e., pure discount) bonds outstanding, maturing in one, two, three, and four years. These bonds are currently priced at
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Unformatted text preview: $940, $880, $800, and $735, respectively. All issues have face values of $1000. 1) What are the corresponding one-, two-, three-, and four-year spot rates? 2) What will be the one-year spot rate in two years (at time t=2)? 3) Suppose Firm X wants to enter a forward contract with you to borrow some money next year (at time t=1) that it will repay one year thereafter (at time t=2). What interest rate would you quote Firm X for this forward loan? Is this the rate that you would quote to all firms who want a forward loan?...
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