10-4 Suppose that five years ago Cisco Systems sold a 15 years bond issue that had...

10-4 Suppose that five years ago Cisco Systems sold a 15 years bond issue that had a $1000 par value and a 7 percent coupon rate. Interest is paid semiannually.

a- If the going interest rate has risen to 10 percent, at what price would the bonds be selling today?

b- Suppose that the interest rate remained at 10 percent for the next 10 years. What would happen to the price of Cisco's bonds over time?

Expert Solution

jeff jeffy answered 6 months ago

Suppose that five years ago Cisco Systems sold a 15-year bond issue that had a $1,000 par value and a 7 percent coupon rate.

Suppose that five years ago Cisco Systems sold a 15-year bond issue that had a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually.a. If the going interest rate has risen to 10 percent, at what price would the bonds be selling today?b. Suppose that the interest rate remained at 10 percent for the next 10 years. What would happen to the price of Cisco’s bonds over time?

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