(Answered) Suppose that a bond pays over 1000 per year for this year

Management Studies

Suppose that a bond pays over $1,000 per year for this year (current dollars) and next year. Two years from now, there is no payment, but the bond can be redeemed for its face value of $10,000.

a. Assume that the interest rate is 5%. What is the price of the bond?

b. Now suppose that the interest rate falls to 2%. What is the price of the bond?

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Business Management, Management Studies

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