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Unformatted text preview: ou are looking to buy junk bonds for your bond portfolio. You end up purchasing a bond from the company Awesome Inc., which is rated CCC. The bond has a coupon rate of 8%, makes annual payments, and has 10 years to maturity. A. You purchased the bond at your required rate of return of 18%. What price did you pay for the bond? P = $80({1 – [1/(1 + .18)]10} / .18) + $1,000[1 / (1 + .18)10] P = $550.59 B. Assume you purchased the bond at the price you calculated in part A. 10 years into the future, Awesome, Inc. is now on the verge of bankruptcy. The company made all coupon payments for the 10 years of the bond’s ma...
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