Bond Valuation All bonds have a $1,000 face or par value unless otherwise stated. kc is...

Bond Valuation

All bonds have a $1,000 face or par value unless otherwise stated. k_c is the coupon rate and k_dis the market cost of debt.

A $1,000 par value bond sells for $1,216. It matures in 20 years, has a 14 percent coupon, pays interest semiannually, and can be called in 5 years at a price of $1,100. You think it is likely that interest rates will either remain at current levels or else decline over the next 5 years. If you buy the bond, what is the most likely nominal rate that you can expect to earn?

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jeff jeffy answered 1 year ago

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