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Assume all bonds pay interest semiannually

Accounting

Assume all bonds pay interest semiannually.

The Altoona Company issued a 25- year bond 5 years ago with a face value of $ 1,000. The bond paysinterest semiannually at a 10% annual rate.

a. What is the bonds price today if the interest rate on comparable new issues is 12%?

b. What is the price today if the interest rate is 8%?

c. Explain the results of parts ( a) and ( b) in terms of opportunities available to investors.

 d. What is the price today if the interest rate is 10%?

e. Comment on the answer to part ( d).

 

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