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Consider the following two bonds which were just issued by two similar companies (in other words, the required return with holding the bonds of the two companies are identical). The two bonds make annual payment. The face value of the first one is a S500,000, 10 year bond with a 10% annual coupon rate issued at a 6.4% premium (i.e., the price is 500,000*1.064). The face value of the other bond is a $1 million, 10 year bond with an 7% annual coupon rate. Calculate the issue price of the second bond. Why was the first bond issued at a premium and the second issued at a discount?

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Financial Management, Finance

Category:- Financial Management
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