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

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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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