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problem1. Two firms (A and B) have $1,000 par value bond issues outstanding which have the same maturity (20 years) and risk. Firm A's bond has 8% annual coupon rate, while Firm B's bond has an 8% semi-annual coupon rate. When the nominal required rate of return, rd is 12%, semi-annual basis, for both bonds, what is the differentiation in current market prices of the two bonds?

problem2. Marie Snell recently taken over some bonds (face value $100,000). Marie desires to cash in the bonds. The 2% annual coupon bonds (interest payable December 31) mature on December 31, 2025, and now it is January 1, 2006. Bonds with same risk and maturity yield 12%. When Marie sells the bonds and the proceeds earn 10% compounded yearly in an account, what is largest equal annual withdrawal she could make for two years, commencement today?

problem3. Two firms (A and B) have $1000 par value bond issues outstanding that have the same maturity (20 years) and risk. Firm A's bond has 8% annual coupon rate, while firm B's bond has 8% semi-annual coupon rate. If the nominal required rate of the return is 12%, semi-annual basis, for both bonds, what is the differentiation in the current market prices of the two bonds?

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  • Category:- Financial Accounting
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