#2 Bond Valuation

# #2 Bond Valuation - UNIVERSITY OF NORTH CAROLINA AT CHAPEL...

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U NIVERSITY OF N ORTH C AROLINA A T C HAPEL H ILL K ENAN -F LAGLER B USINESS S CHOOL B USI 408: C ORPORATE F INANCE P RACTICE P ROBLEM SET #2: B OND V ALUATION P ROF . A RZU O ZOGUZ 1. Consider a bond, which pays \$80 in annual coupon, and has a face value of \$1,000. Calculate the yield to maturity if the bond has a. 20 years remaining to maturity, and it is sold at \$1,200. b. 10 years remaining to maturity, and it is sold at \$950. 2. You have just purchased a newly issued \$1,000 five-year Vanguard Company bond at par. This five year bond pays \$60 in interest semiannually. You are also considering the purchase of another Vanguard Company bond that pays \$30 in semiannual interest payments and has six years remaining before maturity. This bond has a face value of \$1000. a. What is the yield on the five-year bond (expressed as an effective annual yield)? b. Assume that the five-year bond, and the six-year bond have the same yield. What should you be willing to pay for the six-year bond?

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#2 Bond Valuation - UNIVERSITY OF NORTH CAROLINA AT CHAPEL...

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