Ch9_P1sol - Chapter 9, Problem 1 Solution 1. 1. As an...

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401 Chapter 9, Problem 1 Solution 1. 1. As an investor, you are considering an investment in the bonds of the Conifer Coal Company. The bonds, which pay interest semiannually, will mature in eight years, and have a coupon rate of 7.5% on a face value of $1,000. Currently, the bonds are selling for $900. a. If your required return is 9% for bonds in this risk class, what is the highest price you would be willing to pay? (Note: use the PV function.) Worksheet: Formulas: b. What is the current yield of these bonds? If you hold the bonds for one year, what total rate of return will you earn? Why are these two numbers different?
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CHAPTER 9: Error! Reference source not found. Text Problem Solutions 402 Worksheet: Formulas: Possible Answer : The current yield was defined in the book as a rough measure of the return over the next year. The difference is explained by the fact that the current yield ignores compounding and the possible price change that may occur during the holding period. c. What is the yield to maturity on these bonds if you purchase them at the current price? (Note:
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Ch9_P1sol - Chapter 9, Problem 1 Solution 1. 1. As an...

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