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You have the option to purchase an original maturity 25-year Silk Road bond that now has 22 years left to maturity and a coupon rate of 6.5 percent. Market rates on similar securities are currently at 8.5 percent.

a) What price would you be willing to pay for this bond (i.e., what’s the value of this bond)? Assume market interest rates remain unchanged.

b) If you held this bond for one year from what sources would your cash flows emanate (answer in words only)?

c) What would your total rate of return be after one year (be sure to break up the total rate of return into its respective cash flow pieces so we know the source of the cash flows as well as the return).

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92319507

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