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Two years ago Hillary bought a corporate bond with the time to maturity of 8 years, yield to maturity of 10%, and face value of $1,000. It pays semiannual coupons and the coupon rate of 8%.

(a) Did Hillary purchase her bond at a premium, discount, or at par?

(b) Today Bill bought a different financial asset (not a bond). It pays him equal annual payments for 6 years at the end of each year. The discount rate for this asset is 15%. If the price he paid today for this financial asset was identical to how much Hillary’s bond is worth today, how much will Bill be receiving in future annual payments?

Financial Management, Finance

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