. Bright and Beautiful (B & B) Company issued a 25-year bond 5 years ago with...

. Bright and Beautiful (B & B) Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate. a. What is the bond's price today if the interest rate on comparable new issues is 12%? b. What is the price today if the interest rate is 8%? c. Explain the results of parts a and b in terms of opportunities available to investors. d. What is the price today if the interest rate is 10%? e. Comment on the answer to part d.

Solutions

Expert Solution

c) Investor will earn profit if interest rates decreased to 8%. His total return will increase.

Since bond required return equal to the coupon rate, bond is selling at par

jeff jeffy answered 1 year ago

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