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You have some money that you would like to invest. One investment that you are considering is an 8.5% coupon bond that makes quarterly payments and matures in 8 years. It has face value of $1000. Another is an annuity that makes quarterly payments for 8 years. You notice in the Wall Street Journal that you could also purchase a zero coupond bond for $834.40 with a par value of $1000 that mature in 8 years. Assume a flat rate term structure of interest rates ( that is that all the YTMs from years 1 to 8 are the same).

A. What is the coupon bond price?

B. What quarterly annuity payment is required to make you indifferent between investing in the coupon bond and the annuity?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91376018

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