1. A bond was recently quoted at 98. Its face is $1,000 and its coupon is...

1. A bond was recently quoted at 98. Its face is $1,000 and its coupon is 5%. It matures in 15 years.

a. Should you buy the bond if your discount rate is 6%? Why/why not?

b. If your discount rate is 4%, should you buy the above bond? Explain.

c. Suppose the quote for the bond was 101 rather than 98 and your discount rate is 4%. Should you buy the bond? Explain.

Solutions

Expert Solution

Yes, bond is under priced

jeff jeffy answered 1 year ago

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