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P6-15 Basic bond valuation Complex Systems has an outstanding issue of $1,000- par-value bonds with a 12% coupon interest rate.

P6–15 Basic bond valuation Complex Systems has an outstanding issue of $1,000-
par-value bonds with a 12% coupon interest rate. The issue pays interest
annually and has 16 years remaining to its maturity date.
a. If bonds of similar risk are currently earning a 10% rate of return, how
much should the Complex Systems bond sell for today?
b. Describe the two possible reasons why similar-risk bonds are currently
earning a return below the coupon interest rate on the Complex Systems
bond.
c. If the required return were at 12% instead of 10%, what would the current
value of Complex Systems’ bond be? Contrast this finding with your findings
in part a and discuss.

This question was asked on May 18, 2010.

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