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Bob’s Burritos – the best burritos in Brussels wants to issue bonds to finance expansion. The cost associated with expansion will cause cash flows to suffer over the next five years, and make interest payments difficult. Bob’s investment banker suggests issuing 20 year bonds with semi-annual coupon payments, but the first coupon will not be payable until year 5 (i.e. they will not make the first 8 coupon payments). The banker suggests that the bonds carry a coupon rate of 7%, and that investors will demand a 6.0% return on these bonds. What price are investors willing to pay for the bond?

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Financial Management, Finance

Category:- Financial Management
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