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In: Finance

(a) Malcolm Technology issued a new series of bonds on January 1, 1985. They were sold...

(a) Malcolm Technology issued a new series of bonds on January 1, 1985. They were
sold at par ($1,000), have a coupon rate of 10% and mature in 20 years. Coupon
payments are made semi-annually.
(i) Interest rates had risen to 12% by 1995.
What would the price of the bond be on December 31, 1995?
(ii) On July 1, 1995, the bond's price was $990.
What was its yield to maturity on that date?
(b) Malcolm Company’s bonds have 5 years remaining to maturity. Interest is paid
quarterly; the bonds have a $1,000 par value; and the coupon interest rate is12%.
Would you pay $950 for one of these bonds if you thought that the appropriate rate of
interest was 14% - that is, if kd = 14%? Justify your answer.

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Expert Solution

jeff jeffy answered 1 year ago
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