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A $1000-face-value bond issued by Jack-A-Roe Co. currently matures in 18 years, pays annual coupon payments at a coupon rate of 9%, and has a required return of 10% (per year). (a) Calculate a fair price for this bond today. (b) If you believe that, 3 years from now, the appropriate required return will still be 10%, calculate what the price should be 3 years from now. (c) If you believe that, 11 years from now, the appro- priate required return will be still be 10%, calculate what the price should be 11 years from now. (d) If instead you believe that, 11 years from now, the appropriate required return will be 16%, calculate what the price should be 11 years from now.

Financial Management, Finance

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