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51 Bond Valuation with Annual Payments
Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the
bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to
maturity of 9%. What is the market price of these bonds?
Bond price is 1000*.08 * (1  1.09^12)/.09 + 1000*1.09^12 = $928.39
52 YTM for Annual Payments
Wilson Wonders' bonds have 12 years remaining to maturity. Interest is paid annually, the bonds
have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850.
What is their yield to maturity?
Their yield to maturity is 12.475% (
56 Maturity Risk Premium
The real risk free rate is 3% and the inflation is expected to be 3% for the next 2 years. A 2 year
Treasury security yields 6.2%. What is the maturity risk premium for the 2 year security?
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 Spring '09
 WATSON
 Finance, Interest, Interest Rate, Valuation

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